The Journal of Finance for gain. Accordingly, market participants should purchase a stock upon announcement of listing, or before if rumors are out, and sell it when actual listing occurs. Such a strategy would allow the participant to take advantage of the increase in value that presumably accompanies a decision to list. If the price pattern described is systematic, these traders, on the average, are assured a gain. However, the action of a number of market participants engaged in this kind of activity will drive out the opportunity for gain. Thus, if the market adjusts very quickly to new information, the described pattern of stock prices for new listings is without economic foundation and, seemingly, should not exist.' It is important to point out that the existence of arbitrage does not suggest that stock prices cannot rise with the decision to list. It implies only that the adjustment in stock prices to new information is rapid and cannot be exploited for gain. The second question to investigate, then, is whether the decision to list enhances the value of the stock, all other things the same. This question is separate from that of whether or not the stock-price pattern
The Journal of Finance – Wiley
Published: Sep 1, 1970
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