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The Value of Trading Consolidation: Evidence from the Exercise of Warrants

Published online by Cambridge University Press:  06 April 2009

Yakov Amihud ,
Beni Lauterbach  and
Haim Mendelson
Yakov Amihud
Affiliation:
yamihud@stern.nyu.edu, Stern School of Business, New York University, 44 West Fourth Street, New York, NY 10012;
Beni Lauterbach
Affiliation:
lauteb@mail.biu.ac.il, School of Business Administration, Bar Ilan University, Ramat Gan 52899, Israel;
Haim Mendelson
Affiliation:
haim@stanford.edu, Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, CA 94305.
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 38 , Issue 4 , December 2003 , pp. 829 - 846
Copyright
Copyright © School of Business Administration, University of Washington 2003

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