Does Market Structure Affect the Immediacy of Stock Price Responses to News?
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)
London Business School
Journal of Financial and Quantitative Analysis, Vol. 37, No. 4, pp. 617-648, 2002
This study uses transactions data to compare the speed of price adjustments to seasoned equity offering announcements by NYSE/AMEX and NASDAQ stocks. We find that price adjustments following offering announcements are significantly faster on NASDAQ than on the NYSE/AMEX and that the difference in reaction times can be as much as one hour. This result is not due to differences in issuer characteristics or the size of announcement effects across the markets. Further analysis suggests that the faster price reaction of NASDAQ stocks is due to several differences in market structure. We find evidence that greater risk-taking by NASDAQ dealers, more rapid electronic order execution on NASDAQ, a more potent information trading threat (SOES bandits) on NASDAQ, stale limit orders on the NYSE/AMEX and a less efficient price discovery mechanism at the open of the NYSE/AMEX, all contribute to more rapid NASDAQ stock price adjustments.
Number of Pages in PDF File: 50
Keywords: Price adjustment, Market structure, Equity Offering Announcements
Date posted: March 26, 2002