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Asset Returns and the Listing Choice of Firms

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  • Shmuel Baruch
  • Gideon Saar

Abstract

We propose a mechanism that relates asset returns to the firm's optimal listing choice. We use a theoretical model to show that a stock will be more liquid when it is listed on a market where "similar" securities are traded. We empirically examine the implications of our model using New York Stock Exchange (NYSE) and Nasdaq securities. We find that the return patterns of stocks that switch markets become more similar to the return patterns of securities listed on the new market prior to the switch. Stocks that are eligible to switch but stay put are more similar to securities listed on their market than to securities listed on the other market. Our results suggest that managers make listing decisions that enhance the liquidity of their firms' stocks. The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Shmuel Baruch & Gideon Saar, 2009. "Asset Returns and the Listing Choice of Firms," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2239-2274, June.
  • Handle: RePEc:oup:rfinst:v:22:y:2009:i:6:p:2239-2274
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    File URL: http://hdl.handle.net/10.1093/rfs/hhl043
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    Citations

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    Cited by:

    1. Chua, Choong Tze & Lai, Sandy & Lewis, Karen K., 2010. "Are the Gains from Foreign Diversification Diminishing? Assessing the Impact with Cross-Listed Stocks," Working Papers 10-1, University of Pennsylvania, Wharton School, Weiss Center.
    2. Chan, Kalok & Hameed, Allaudeen & Kang, Wenjin, 2013. "Stock price synchronicity and liquidity," Journal of Financial Markets, Elsevier, vol. 16(3), pages 414-438.
    3. Bai, Jushan & Ando, Tomohiro, 2013. "Multifactor asset pricing with a large number of observable risk factors and unobservable common and group-specific factors," MPRA Paper 52785, University Library of Munich, Germany, revised Dec 2013.
    4. Gerig, Austin & Michayluk, David, 2017. "Automated liquidity provision," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 1-13.
    5. Fricke, Daniel & Gerig, Austin, 2014. "Liquidity Risk, Speculative Trade, and the Optimal Latency of Financial Markets," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100402, Verein für Socialpolitik / German Economic Association.
    6. Andrew Ang & Assaf A. Shtauber & Paul C. Tetlock, 2013. "Asset Pricing in the Dark: The Cross-Section of OTC Stocks," Review of Financial Studies, Society for Financial Studies, vol. 26(12), pages 2985-3028.
    7. Karen K. Lewis, 2015. "Do Foreign Firm Betas Change During Cross-listing?," NBER Working Papers 21054, National Bureau of Economic Research, Inc.
    8. Daniel Fricke & Austin Gerig, 2018. "Too fast or too slow? Determining the optimal speed of financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 18(4), pages 519-532, April.

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