Abstract
This paper examines the value effects of improvements in the trading mechanism. Selected stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a positive and permanent price appreciation. The cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5.5%. In addition, we find positive liquidity externalities (spillovers) across related stocks, and improvements in the value discovery process due to the improved trading method. Finally, there was a positive association between liquidity gains and price appreciation.
| Original language | English |
|---|---|
| Pages (from-to) | 365-390 |
| Number of pages | 26 |
| Journal | Journal of Financial Economics |
| Volume | 45 |
| Issue number | 3 |
| DOIs | |
| State | Published - Sep 1997 |
Keywords
- Liquidity
- Market microstructure
- Trading systems
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