Economic Consequences of Market Section Switching: Evidence from NYSE-Euronext Paris

36 Pages Posted: 8 May 2011

See all articles by Patrice C. Fontaine

Patrice C. Fontaine

Eurofidai (CNRS)

Abdoul Cissé

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG); ISG Paris

Date Written: March 18, 2011

Abstract

In this study, we analyze the impact of a trading compartment switch on price, liquidity, and risk. We examine a sample of seventy one firms which transferred their common stocks from a non (or less) regulated compartment to a more regulated one of the French market (NYSE-Euronext Paris) between 1995 and 2007. Our results show a positive market's reaction around the transfer announcement and an improvement of the liquidity level of transferred stocks after the announcement. After admission in the new market section, the market's reaction weakens strongly. Our results also reveal the existence of a link between stock price reaction to a compartment transfer and their pre-transfer liquidity level. Indeed, the market's reaction and liquidity improvement are stronger if the firms' stocks were relatively less liquid before the announcement. Finally, our study highlights that this kind of transfer reduces the returns volatility of the switched stocks and also reduces their specific risk, but has no significant effect on their systematic risk.

Keywords: Market section transfer, price reaction, liquidity effect, information asymmetry, event study.

JEL Classification: G14

Suggested Citation

Fontaine, Patrice C. and Cissé, Abdoul Karim and Cissé, Abdoul Karim, Economic Consequences of Market Section Switching: Evidence from NYSE-Euronext Paris (March 18, 2011). International Conference of the French Finance Association (AFFI), May 2011, Available at SSRN: https://ssrn.com/abstract=1834351

Patrice C. Fontaine (Contact Author)

Eurofidai (CNRS) ( email )

150, rue de la Chimie - EUROFIDAI UMS CNRS 2748
UGA domaine universitaire
Grenoble Cedex 9, 38058
France

Abdoul Karim Cissé

ISG Paris ( email )

147, Avenue Victor Hugo
Paris, 75116
France

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG) ( email )

150 rue de la Chimie, BP47
Grenoble Cedex 9, 38040
France

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