We study the effect of trading consolidation by examining the response of liquidity and stock price to the exercise of deep in-the-money corporate warrants. This enables a relatively clean test of the value of trading consolidation. The exercise at the warrant expiration is fully anticipated and...

An asset is liquid if it can be traded at the prevailing market price quickly and at low cost. We show that in addition to risk, liquidity affects asset prices and returns. Theories of asset pricing suggest that the expected return on an asset is increasing in its risk, because risk-averse...

This paper examines the value effects of improvements in the trading mechanism. Stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a...

Merton's recent extension of the capital asset pricing model proposed that asset returns are an increasing function of their beta risk, residual risk, and size, and a decreasing function of the public availability of information about them. Associating the latter with asset liquidity and...

The effects of asset liquidity on expected returns for assets with infinite maturities (stocks) are examined for bonds (Treasury notes and bills with matched maturities of less than six months). The yield to maturity is higher on notes, which have lower liquidity. The yield differential between...