INTRODUCTION THIS PAPER CONCERNS the effect of the National Association of Securities Dealers' Automated Quotation (NASDAQ) system on the price of marketability' for unlisted common stocks in the over-the-counter (OTC) marketplace. The analysis of NASDAQ contributes some evidence on the relationship between the organization of the marketplace for stocks and the price of marketability. Tinic and West  have noted the paucity of empirical evidence on the relative merits of alternative marketplace organizations and have created "a stem in the direction of redressing this deficiency." Finding that prices of marketability were lower (ceteris paribus) in marketplaces with dealers than in those without dealers, they concluded that dealers increased the efficiency of the marketplace for stocks. Marketplaces with dealers have been organized in various ways, however. The study reported here considers some alternative organizations for dealer marketplaces. In particular, the analysis of NASDAQ revealed that changing a multidealer marketplace to incorporate a computerized market information system has increased its efficiency. This finding adds to Tinic and West's stem a branch that is of interest for several reasons. The first is the efficiency of the OTC marketplace itself. Dealer firms provide marketability for stocks by immediately transacting on their own
The Journal of Finance – Wiley
Published: May 1, 1978
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