The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings




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    • Kadlec is from the R.B. Pamplin College of Business, Virginia Polytechnic and State University. McConnell is from Krannert School of Management, Purdue University. We would like to thank Claudio Loderer, Gordon Phillips, Dennis Sheehan, René Stulz, an anonymous referee, and seminar participants at the Center for Research on Security Prices, Boston College, University of California at Los Angeles, Clemson University, University of Houston, Purdue University, University of Texas at Austin, University of Utah, Washington State University, and Western Michigan University for their helpful comments and suggestions.


This article documents the effect on share value of listing on the New York Stock Exchange and reports the results of a joint test of Merton's (1987) investor recognition factor and Amihud and Mendelson's (1986) liquidity factor as explanations of the change in share value. We find that during the 1980s stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid-ask spreads. Cross-sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing.