Asset Returns and the Listing Choice of Firms

50 Pages Posted: 19 Mar 2004

See all articles by Shmuel Baruch

Shmuel Baruch

University of Rome Tor Vergata, Department of Economics and Finance

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: June 2006

Abstract

We propose a mechanism that relates asset returns to the firm's optimal listing choice. The crucial element in our framework is not a difference in the structure or rules of the alternative markets, but a difference in the return patterns of the securities that are traded on these markets. We use a simple trading model with asymmetric information to show that a stock will be more liquid when it is listed on a market where "similar" securities, or securities with which its value innovations are more correlated, are traded. We empirically examine the implications of our model using NYSE and Nasdaq securities, and document that the return patterns of securities listed on the NYSE indeed look different from the return patterns of Nasdaq securities. Stocks that are eligible to list on the other market but do not switch have return patterns that are similar to those of other securities on their own market but different from the return patterns of securities listed on the other market. We show that the return patterns of stocks that switch markets change in the two years prior to the move to be more similar to the return patterns of securities listed on the new market. Furthermore, the greatest improvement in liquidity is experienced by the switching stocks whose return patterns resemble most the return patterns of securities listed on the new market. Our results suggest that managers make listing decisions that enhance the liquidity of their firms' stocks.

Keywords: Listing, exchanges, market microstructure, information asymmetry, return patterns, corporate decision making, NYSE, NASDAQ

JEL Classification: G10, G14, G30

Suggested Citation

Baruch, Shmuel and Saar, Gideon, Asset Returns and the Listing Choice of Firms (June 2006). Johnson School Research Paper Series No. 12-06, Available at SSRN: https://ssrn.com/abstract=518022 or http://dx.doi.org/10.2139/ssrn.518022

Shmuel Baruch

University of Rome Tor Vergata, Department of Economics and Finance ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Gideon Saar (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

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