Information and Liquidity in the Modern OTC Marketplace

OTC Markets Group organizes over 10,000 securities that trade over-the-counter into one of three tiered marketplaces (OTCQX, OTCQB, and OTC Pink) based on the quality and quantity of information a firm discloses. The tier designation and listing status of the securities in this study provide a unique setting to examine the effects of information disclosure on prices and market quality. We examine trading within the tiers and find that firms in higher information tiers are more liquid than firms trading in lower information tiers. Approximately 70% of the OTC securities are penny stocks trading under five dollars. We find that these securities with lottery-like features tend to generate significantly more investor interest than their non-penny OTC counterparts. Our analysis adds to the small stream of literature studying the modernized OTC marketplace and provides a more complete picture of trading in this space