No abstract

In October 2000, the Securities and Exchange Commission (SEC) passed Regulation Fair Disclosure (FD) in an effort to reduce selective disclosure of material information by firms to analysts and other investment professionals. We find that the information asymmetry reflected in trading costs at earnings announcements has declined after Regulation FD, with the decrease more pronounced for smaller and less liquid stocks. Return volatility around mandatory announcements is also lower but overall information flow is unchanged when mandatory and voluntary announcements are combined. Thus, the SEC appears to have diminished the advantage of informed investors, without increasing volatility.

No abstract

This article empirically examines the liquidity premium predicted by the Amihud and Mendelson (1986) model using Nasdaq data over the 1973–1990 period. The results support the model and are much stronger than for the New York Stock Exchange (NYSE), as reported by Chen and Kan (1989) and Eleswarapu and Reinganum (1993). I conjecture that the stronger evidence on the Nasdaq is due to the dealers' inside spreads on the Nasdaq being a better proxy for the actual cost of transacting than the quoted spreads on the NYSE, since the Nasdaq dealers do not face competition from limit orders or floor traders.

We examine whether the quality of legal and political institutions impact the trading costs of stocks originating from a country. A study of liquidity costs of 412 NYSE-listed ADRs from 44 different countries reveals a number of interesting findings: The average trading costs are significantly higher for stocks from civil law (French-origin) countries than for stocks from common law (English-origin) countries. After controlling for firm-level determinants of trading costs, effective spreads and price impact of trades are significantly lower for stocks from countries with (i) more efficient judicial systems, (ii) better accounting standards, and (iii) more stable political systems. These empirical relationships are economically very significant.Surprisingly, in the presence of firm-level controls, the enforcement of insider trading does not explain trading costs. Overall, we document that macro-level institutional risk is an important determinant of equity trading costs.