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Modern OTC market structure and liquidity: The tale of three tiers

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  • Davis, Ryan
  • Griffith, Todd
  • Van Ness, Bonnie
  • Van Ness, Robert

Abstract

OTC Markets Group organizes stocks that trade over-the-counter (OTC) into three marketplaces (OTCQX, OTCQB, and Pink) based on firm quality and disclosure practices. We examine trading within these tiers and find that stocks in higher tiers are more liquid than stocks in lower tiers. After a series of difference-in-differences tests comparing a matched sample of stocks that change tiers, we find that liquidity improves (deteriorates) for stocks moving up (down) the tiered market structure, suggesting that the tier designations resolve uncertainty and increase firm visibility. Our results show that liquidity differences between tiers is attributable to OTC market structure.

Suggested Citation

  • Davis, Ryan & Griffith, Todd & Van Ness, Bonnie & Van Ness, Robert, 2023. "Modern OTC market structure and liquidity: The tale of three tiers," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000137
    DOI: 10.1016/j.finmar.2023.100815
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    More about this item

    Keywords

    OTC Markets; Liquidity; Tiered market structure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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