Information and Liquidity in the Modern OTC Marketplace

32 Pages Posted: 23 Nov 2016

See all articles by Ryan Davis

Ryan Davis

University of Alabama at Birmingham

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: November 21, 2016

Abstract

OTC Markets Group organizes over 10,000 securities that trade over-the-counter into one of three tiered marketplaces (OTCQX, OTCQB, and OTC Pink) based on the quality and quantity of information a firm discloses. The tier designation and listing status of the securities in this study provide a unique setting to examine the effects of information disclosure on prices and market quality. We examine trading within the tiers and find that firms in higher information tiers are more liquid than firms trading in lower information tiers. Approximately 70% of the OTC securities are penny stocks trading under five dollars. We find that these securities with lottery-like features tend to generate significantly more investor interest than their non-penny OTC counterparts. Our analysis adds to the small stream of literature studying the modernized OTC marketplace and provides a more complete picture of trading in this space.

Keywords: OTC Markets, Penny Stocks, Tiers, Liquidity, Market Quality

JEL Classification: G10, G14, G15

Suggested Citation

Davis, Ryan and Van Ness, Bonnie F. and Van Ness, Robert A., Information and Liquidity in the Modern OTC Marketplace (November 21, 2016). Available at SSRN: https://ssrn.com/abstract=2873853 or http://dx.doi.org/10.2139/ssrn.2873853

Ryan Davis (Contact Author)

University of Alabama at Birmingham ( email )

Birmingham, AL 35294
United States

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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