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RFS Advance Access published online on October 25, 2006
Review of Financial Studies, doi:10.1093/rfs/hhl043
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Copyright © The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies.

Article

Asset Returns and the Listing Choice of Firms

Shmuel Baruch 1 * and Gideon Saar 2 *
1 David Eccles School of Business, University of Utah, Salt Lake City, UT 84112
2 Johnson Graduate School of Management, 455 Sage Hall, Cornell University, Ithaca, NY 14853

* To whom correspondence should be addressed.
Shmuel Baruch, E-mail: finsb{at}business.utah.edu
Gideon Saar, E-mail: gs25{at}cornell.edu


  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 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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