The Nasdaq-Amex Merger, Nasdaq Reforms, and the Liquidity of Small Firms

After the Nasdaq and AMEX merged in 1998, officials of the new entity argued that some quot;smaller, harder to tradequot; companies on Nasdaq should switch to AMEX to improve liquidity. This recommendation is based on the traditional view among academics and practitioners alike that a substantial trading cost reduction should be realized when a company switches from the multidealer Nasdaq system to the AMEX specialist system. However, in light of the 1997 Nasdaq reforms, we reexamine the validity of these arguments using data from 1996-1998 on firms that switch from the Nasdaq to AMEX or NYSE. Evidence from transaction costs, volatility, and stock returns shows declining benefits to switching over the sample period. Our findings indicate that the liquidity improvement from exchange listing is limited in the wake of the Nasdaq reforms of 1997