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

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