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Does Market Structure Affect the Immediacy of Stock Price Responses to News?

Published online by Cambridge University Press:  06 April 2009

Ronald W. Masulis  and
Lakshmanan Shivakumar
Ronald W. Masulis
Affiliation:
ronald.masulis@owen.vanderbilt.edu, Owen Graduate School of Management, Vanderbilt University, Nashville, TN 37203
Lakshmanan Shivakumar
Affiliation:
lshivakumar@london.edu, London Business School, Sussex Place, Regent's Park, London, NW1 4SA, UK.
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Abstract

This study compares the speed of price adjustments to seasoned equity offering announcements by NYSE/AMEX and Nasdaq stocks. We find that price adjustments are quicker by as much as one hour on Nasdaq. This result is not due to differences in issuer characteristics or announcement effects across the markets, but due to differences in market structures. Greater risk taking by dealers, more rapid order execution, and more frequent informed trading (SOES bandits) on Nasdaq, as well as stale limit orders and a less efficient opening price-setting mechanism on the NYSE/AMEX, all contribute to faster stock price adjustments on Nasdaq.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 4 , December 2002 , pp. 617 - 648
Copyright
Copyright © School of Business Administration, University of Washington 2002

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