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RFS Advance Access originally published online on October 25, 2006
Review of Financial Studies 2009 22(6):2239-2274; doi:10.1093/rfs/hhl043
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© 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.

Asset Returns and the Listing Choice of Firms

Shmuel Baruch
University of Utah

Gideon Saar
Cornell University

Send correspondence to Shmuel Baruch, David Eccles School of Business, University of Utah, Salt Lake City, UT 84112. E-mail: finsb{at}business.utah.edu; or Gideon Saar, Johnson Graduate School of Management, 455 Sage Hall, Cornell University, Ithaca, NY 14853. E-mail: gs25{at}cornell.edu.

JEL Classification: G12, G14, G30


  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.

We wish to thank Nikolay Halov and Yang Lu for research assistance, and Hendrik Bessembinder, Robert Bloomfield, Ekkehart Boehmer, Daniel Deli, Thierry Foucault, Robert Jarrow, Roni Michaely, Maureen O'Hara, Matt Spiegel, an anonymous referee, and seminar participants at Cornell University and the NBER Market Microstructure Group for helpful comments.


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