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Does Market Structure Affect the Immediacy of Stock Price Responses to News?

50 Pages Posted: 26 Mar 2002  

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)

Lakshmanan Shivakumar

London Business School

Abstract

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.

Keywords: Price adjustment, Market structure, Equity Offering Announcements

Suggested Citation

Masulis, Ronald W. and Shivakumar, Lakshmanan, Does Market Structure Affect the Immediacy of Stock Price Responses to News?. Journal of Financial and Quantitative Analysis, Vol. 37, No. 4, pp. 617-648, 2002. Available at SSRN: https://ssrn.com/abstract=296482

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Lakshmanan Shivakumar (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)

HOME PAGE: http://faculty.london.edu/lshivakumar/

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