MARKET MICROSTRUCTURE AND SECURITIES VALUES - EVIDENCE FROM THE TEL-AVIV STOCK-EXCHANGE

This paper examines the value effects of improvements in the trading m echanism. Selected stocks on the Tel Aviv Stock Exchange were transfer red gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This eve nt was associated with a positive and permanent price appreciation. Th e cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stock s started trading by the new method was approximately 5.5%. In additio n, we find positive liquidity externalities (spillovers) across relate d stocks, and improvements in the value discovery process due to the i mproved trading method. Finally, there was a positive association betw een liquidity gains and price appreciation.