Unlisted Trading Privileges, Liquidity, and Stock Returns

Khan, Walayet A.; Baker, H. Kent

doi:10.1111/j.1475-6803.1993.tb00142.x

Cited by 43 publications

(19 citation statements)

References 19 publications

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“…Cooper et al (1985), Khan and Baker (1993) (Atkins and Dyl (1997), Chordia et al (2002)). This is a drawback, which Liu (2006) and Subrahmanyam (2009) has been calling to address.…”

Section: Empirical Findingsmentioning

confidence: 99%

Size, Value and Liquidity: Do They Really Matter on an Emerging Stock Market?

Lischewski

Voronkova

2010

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10070.pdf Non-Technical SummaryThe paper provides new evidence on the factors that explain stock returns on the emerging markets. It focuses on the largest and most developed of the Central and Eastern European markets, the Polish stock market, which has been previously overlooked by the literature.In addition to the established factors, such as market, size and book-to-market value we investigate whether liquidity helps explaining Polish stock returns. The literature argues that liquidity should play a role on an emerging stock market where securities and investors are scarce and trading volumes are lower than on developed markets. The study is based on a hand-collected and carefully constructed dataset. In addition, our paper utilizes the largest array of liquidity measures considered in the literature to-date. In this way we ensure that our results are robust to multiple dimensions of liquidity. Our results support the hypothesis that the market, size, and book-to-market factors are important for explaining returns on the emerging Polish stock market. However, contrary to the expectations we do not find convincing evidence that liquidity is a priced factor. The results are robust across various liquidity measures and time periods. Das Wichtigste in Kürze AbstractThe paper extends the evidence on the factors relevant for pricing stocks in emerging markets. While previous literature focused on Latin American and Asian developing markets, Central and Eastern European markets remain under-researched. By focusing on the Polish stock market, we aim to fill in a gap in the asset pricing literature and draw attention to these previously overlooked markets. In addition to analyzing the importance of the most prominent risk-factors such as market, size and book-to-market value, we investigate whether liquidity plays a role in pricing Polish stocks. To test this conjecture we use the largest array of liquidity measures that has been used in the literature to date. We take advantage of a hand-collected dataset covering the longest period studied so far in case of the this market. Our results support existing evidence for developed markets with regard to the market, size, and book-to-market factor. However, in contrast to studies on other emerging markets, we do not find convincing evidence in favour of the liquidity risk premium on the Polish stock market. This result is robust acro...

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“…Cooper et al (1985), Khan and Baker (1993) (Atkins and Dyl (1997), Chordia et al (2002)). This is a drawback, which Liu (2006) and Subrahmanyam (2009) has been calling to address.…”

Section: Empirical Findingsmentioning

confidence: 99%

Size, Value and Liquidity: Do They Really Matter on an Emerging Stock Market?

Lischewski

Voronkova

2010

SSRN Journal

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“…Mendelson (1987) shows that individual stock trading in multiple markets reduces market liquidity while increasing price volatility. Khan and Baker (1993), Bessembinder and Kaufman (1997), and Davis and Lightfoot (1998) find a probable increase in bid-ask spreads and greater price volatility due to fragmentation. The overall impact of a new system depends on which effect, competition or fragmentation, is dominant.…”

Section: Introductionmentioning

confidence: 96%

Market quality and price discovery: Introduction of the E-mini energy futures

Tse

2005

Global Finance Journal

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“…They find that both the effective bid-ask spread and the market-impact cost are larger for 19c-3 stocks. Khan and Baker (1993) examine cases where regional exchanges attract trades in listed stocks away from the main exchanges (NYSE and AMEX). He finds that fragmentation has increased transaction costs by 0.7i to 1U per share, on average.…”

Section: Introductionmentioning

confidence: 99%

The Value of Trading Consolidation: Evidence from the Exercise of Warrants

Amihud

Lauterbach

Mendelson

2003

The Journal of Financial and Quantitative Analysis

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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Cambridge University Press and University of Washington School of Business Administration are collaborating with JSTOR to digitize, preserve and extend access to The Journal of Financial and Quantitative Analysis. AbstractWe study the effect of trading consolidation by examining the response of liquidity and stock price to the exercise of deep in-the-money corporate warrants. This enables a relatively clean test of the value of trading consolidation. The exercise at the warrant expiration is fully anticipated and has no information content. An effect can come from the value of trading consolidation that improves liquidity. Indeed, we find that liquidity and stock prices both increase significantly at warrant expiration. Further, the price increase is positively related to the pre-exercise extent of fragmentation, to post-exercise improvement in stock liquidity, and to the proportional increase in the number of shares following the warrant exercise. *Amihud, yamihud@stern.nyu.edu, Stern . We thank Hank Bessembinder (associate editor and referee) and Jon Karpoff (the editor), for comments and suggestions that helped improve the paper. Financial support from the Israel Institute for Business Research of the Recanati Business School at Tel-Aviv University is gratefully acknowledged.Island is an electronic communication network (ECN) that serves as an electronic marketplace. In 2001, about 20% of NASDAQ volume was traded on Island. 829 This content downloaded from 128.235.251.160 on Sat, 3 Jan 2015 14:27:49 PM All use subject to JSTOR Terms and Conditions 830 Journal of Financial and Quantitative Analysis exchange floor. They show that while off-exchange execution is beneficial for brokers, it can result in larger bid-ask spreads and greater price volatility than a consolidated market. Along similar lines, Cohen, Conroy, and Maier (1985) show that in a fragmented market there is a lower chance that an order will find a trading counterpart, an increase in the expected time a limit order has to wait until it is executed, and a wider bid-ask spread. Mendelson (1987) shows that the overall gains from trade decline as the market becomes more fragmented. Thus, theory suggests that fragmentation reduces liquidity. Is the fragmentation of trading actually harmful to liquidity and, consequently, does it lower stock values? The answer is important for the design and regulation of securities markets. This issue took center stage since the Securities and Exchange Commission (SEC) pressured the NYSE to relax its Rule 390, which prohibited member firms from executing trades in NYSE-listed stocks off the Exchange floor.2 In 1980, the SEC enacted Rule 19c-3 that allows member firms to trade stocks of...

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Unlisted Trading Privileges, Liquidity, and Stock Returns

Cited by 43 publications

References 19 publications

Size, Value and Liquidity: Do They Really Matter on an Emerging Stock Market?

Size, Value and Liquidity: Do They Really Matter on an Emerging Stock Market?

Market quality and price discovery: Introduction of the E-mini energy futures

The Value of Trading Consolidation: Evidence from the Exercise of Warrants

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