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Liquidity spillovers: Evidence from two-step spinoffs

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  • Amihud, Yakov
  • Huh, Sahn-Wook
  • Subrahmanyam, Avanidhar

Abstract

How does an idiosyncratic shock to stock liquidity affect liquidity and efficiency in the markets for related stocks? Utilizing the unique feature that the second stage of a two-step spinoff greatly increases the free float of a public firm, we document strong evidence that the enhanced liquidity of spun-off firms spills over to their industry peers, increasing their liquidity. The improved liquidity induces greater pricing efficiency and larger institutional holdings in these stocks. Liquidity spillovers also lead to positive valuation spillovers. Our results concerning liquidity externality and its consequences have important implications for policymakers, regulators, and firm managers.

Suggested Citation

  • Amihud, Yakov & Huh, Sahn-Wook & Subrahmanyam, Avanidhar, 2025. "Liquidity spillovers: Evidence from two-step spinoffs," Journal of Financial Markets, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:finmar:v:76:y:2025:i:c:s1386418125000400
    DOI: 10.1016/j.finmar.2025.101000
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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