Privatization and Stock Market Liquidity

40 Pages Posted: 27 Jul 2004

See all articles by Bernardo Bortolotti

Bernardo Bortolotti

Bocconi University; University of Turin

Frank De Jong

Tilburg University - Department of Finance

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; CEPR; EGCI; Netspar

Ibolya Schindele

Central European University; Central Bank of Hungary

Date Written: June 2004

Abstract

Using panel data of 19 developed economies in the period 1985-2000, we show that share issue privatization (SIP) strongly affects a fundamental aspect of financial development: Market liquidity. First, we identify the channels through which a sustained SIP program boosts the liquidity of the overall market. Then, we explicitly test whether SIP has a positive spillover effect on the liquidity of private companies' shares. Liquidity appears to be sensitive to the amount of shares sold to retail investors, whose trading reduces the adverse selection component of the price impact. The cross-listing of shares exhibits an even stronger effect, suggesting that international offerings eliminate informational barriers and attract foreign investors to the domestic market, thereby reducing its risk premium.

Keywords: Privatization, financial market development, international finance

JEL Classification: F30, G14, L33, O16

Suggested Citation

Bortolotti, Bernardo and De Jong, Frank and Nicodano, Giovanna and Schindele, Ibolya, Privatization and Stock Market Liquidity (June 2004). Available at SSRN: https://ssrn.com/abstract=569664

Bernardo Bortolotti

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

University of Turin

Via Po 53
Torino, Turin - Piedmont 10100
Italy

Frank De Jong (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Giovanna Nicodano

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

CEPR ( email )

London
United Kingdom

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Ibolya Schindele

Central European University ( email )

Quellenstraße 51
Vienna, 1100
Hungary

HOME PAGE: http://economics.ceu.edu/

Central Bank of Hungary ( email )

Szabadság tér 9.
Budapest, 1054
Hungary

HOME PAGE: http://www.mnb.hu/web/en

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