Abstract
We 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.
| Original language | English |
|---|---|
| Pages (from-to) | 829-846 |
| Number of pages | 18 |
| Journal | Journal of Financial and Quantitative Analysis |
| Volume | 38 |
| Issue number | 4 |
| DOIs | |
| State | Published - Dec 2003 |
Bibliographical note
Funding Information:Amihud, [email protected], Stern School of Business, New York University, 44 West Fourth Street, New York, NY 10012; Lauterbach, [email protected], School of Business Administration, Bar Ilan University, Ramat Gan 52899, Israel; Mendelson, [email protected], Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, CA 94305. 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.
Funding
Amihud, [email protected], Stern School of Business, New York University, 44 West Fourth Street, New York, NY 10012; Lauterbach, [email protected], School of Business Administration, Bar Ilan University, Ramat Gan 52899, Israel; Mendelson, [email protected], Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, CA 94305. 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.
| Funders | Funder number |
|---|---|
| Israel Institute for Business Research of the Recanati Business School at Tel-Aviv University |