Skip to main content
SpringerLink
Log in

The effects of listing changes between NASDAQ market segments

  • Published:
Journal of Economics and Finance Aims and scope Submit manuscript

Abstract

This study analyzes the effects of listing changes within NASDAQ market segments during the period of 1998 to 2005. We find that firms phased up from the NASDAQ Small Capital Market (SmallCap) to the NASDAQ National Market (NNM) experienced significant declines in bid-ask spreads, the volatility of returns, and the probability of informed trading, and firms that phased down from NNM to the SmallCap experienced decreases in bid-ask spreads, but insignificant changes in the volatility of returns and the probability of informed trading. We also estimate simultaneous equations models of bid-ask spreads, return volatility, and trading volume for both groups of firms. The results confirm that improved liquidity is associated with the listing changes for the phase-up firms. However, the simultaneous equations model suggests that the decreases in bid-ask spreads for the phase-down firms are caused by the changes in share prices.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. National Association of Securities Dealers, Inc. (NASD) Rule 3350, or NASD Short Sale Rule, was approved by the Securities and Exchange Commission (SEC).

  2. In 1984, the Federal Reserve Board ruled that NASDAQ/NMS securities automatically qualified for purchase in margin accounts, like issues listed on the NYSE and AMEX.

  3. Blue Sky Laws: State regulations designed to protect investors against securities fraud by requiring sellers of new issues to register their offerings and provide financial details. This allows investors to base their judgments on trustworthy data.

  4. A value of 1 indicates the stock was included in the SmallCap Market before June 15, 1992, and a value of 3 indicates the stock was included in the SmallCap after June 15, 1992.

  5. We have checked the order condition of identification; Eqs. (5) to (7) are all identified. All three equations satisfy the rank conditions as well.

References

  • Amihud Y, Mendelson H (1988) Liquidity and asset prices: financial management implications. Financ Manage 17(1):5

    Article  Google Scholar 

  • Baker HK, Edelman RB (1990) OTC market switching and stock returns—some empirical-evidence. J Financ Res 13(4):325–338

    Google Scholar 

  • Barclay MJ (1997) Bid-ask spreads and the avoidance of odd-eights quotes on NASDAQ: an examination of exchange listings. J Financ Econ 45(1):35–60

    Article  Google Scholar 

  • Barclay MJ (1999) The effects of market reform on the trading costs and depths of NASDAQ stocks. J Fin 54:1

    Article  Google Scholar 

  • Barclay MJ, Hendershott T (2003) Price discovery and trading after hours. Rev Financ Stud 16(4):1041–1073

    Article  Google Scholar 

  • Bennett P, Wei L (2006) Market structure, fragmentation and market quality. J Financ Mark 9(1):49–78

    Article  Google Scholar 

  • Bessembinder H (1999) Trade execution costs on NASDAQ and the NYSE: a post-reform comparison. J Financ Quant Anal 34(3):387–407

    Article  Google Scholar 

  • Bessembinder H (2003) Quote-based competition and trade execution costs in NYSE-listed stocks. J Financ Econ 70:385–422

    Article  Google Scholar 

  • Christie WG, Schultz PH (1994) Why do NASDAQ market makers avoid odd-8th quotes. J Financ 49(5):1813–1840

    Article  Google Scholar 

  • Christie WG, Harris JH, Schultz PH (1994) Why did NASDAQ market makers stop avoiding odd-8th quotes. Journal of Finance 49(5):1841–1860

    Article  Google Scholar 

  • Easley D, Kiefer NM, O’Hara M (1996a) Cream-skimming or profit-sharing? The curious role of purchased order flow. J Financ 51(3):811–833

    Article  Google Scholar 

  • Easley D, Kiefer NM, O’Hara M, Paperman JB (1996b) Liquidity, information, and infrequently traded stocks. J Financ 51(4):1405–1436

    Article  Google Scholar 

  • Elyasiani E, Hauser S, Lauterbach B (2000) Market response to liquidity improvements: evidence from exchange listings. Financ Rev 35(1):1

    Article  Google Scholar 

  • Grossman SJ, Miller MH (1988) Liquidity and market structure. J Financ 43(3):617–633

    Article  Google Scholar 

  • Hamilton JL (1976) Competition, scale economies, and transaction cost in the stock market. J Financ Quant Anal 11(5):779–802

    Article  Google Scholar 

  • Huang R, Stoll H (1996) Dealer versus auction markets: a paired comparison of execution costs on NASDAQ and the NYSE. J Financ Econ 41:313–357

    Article  Google Scholar 

  • Karpoff J (1986) A theory of trading volume. J Financ 41:1060–1088

    Article  Google Scholar 

  • Lee C, Ready M (1991) Inferring trade direction from intraday data. J Financ 46:733–747

    Article  Google Scholar 

  • Madhavan A (1995) Consolidation, fragmentation, and the disclosure of trading information. Rev Financ Stud 8(3):579–603

    Article  Google Scholar 

  • Mendelson H (1987) Consolidation, fragmentation, and market performance. J Financ Quant Anal 22(2):189–207

    Article  Google Scholar 

  • Pagano M, Roell A (1996) Transparency and liquidity: a comparison of auction and dealer markets with informed trading. J Financ 51:33

    Article  Google Scholar 

  • Rindi B (2008) Informed traders as liquidity providers: anonymity, liquidity and price formation. Rev Financ 12(3):497–532

    Article  Google Scholar 

  • Tauchen G, Pitts M (1983) The price variability-volume relation on speculative markets. Econometrica 51:485–505

    Article  Google Scholar 

  • Viswanathan KG, Papaioannou G, Krull S (1997) Testing for liquidity gains in the market reaction to NASDAQ national market system phase-ins. Q J Bus Econ 36(3):49–61

    Google Scholar 

  • Weston JP (2000) Competition on the NASDAQ and the impact of recent market reforms. J Financ 55(6):2565–2598

    Article  Google Scholar 

Download references

Acknowledgement

The authors would like to thank the editor and an anonymous referee for their comments which significantly improved the focus of the paper. The authors also thank William F. Chappell, Jon Moen, Simona Lup Tick and Robert A. Van Ness for their helpful comments and suggestions. The views expressed are those of the authors and they assume full responsibility of all errors and omissions.

Author information

Authors and Affiliations

  1. Department of Business Administration and Economics, Limestone College, 1115 College Drive, Gaffney, SC, 29340, USA

    Wenbin Tang

  2. Merrick School of Business, University of Baltimore, 1420 N. Charles Street, Baltimore, MD, 21201, USA

    Hoang H. Nguyen

  3. Department of Accounting and Finance, Earl G. Graves School of Business and Management, Morgan State University, 1700 E. Cold Spring Lane, MM620, Baltimore, MD, 21251, USA

    Van T. Nguyen

Authors
  1. Wenbin Tang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Hoang H. Nguyen
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Van T. Nguyen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Van T. Nguyen.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Tang, W., Nguyen, H.H. & Nguyen, V.T. The effects of listing changes between NASDAQ market segments. J Econ Finan 37, 584–605 (2013). https://doi.org/10.1007/s12197-011-9198-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12197-011-9198-3

Keywords

JEL classification

Search

Navigation