NYSE VS NASDAQ RETURNS - MARKET MICROSTRUCTURE OR THE POOR PERFORMANCE OF INITIAL PUBLIC OFFERINGS

Reinganum (1990) reports that small NYSE securities have average retur ns about 6% per year higher than those of similarly-sized NASDAQ secur ities during the 1973-1988 period. He attributes the return differenti al to market microstructure differences. In contrast, this paper demon strates that differences in the characteristics of the companies liste d on the two exchanges explain much of the disparity. About 60% of the return differential can be attributed to the poor performance of rece nt initial public offerings, which comprise a large portion of the fir ms on NASDAQ. On average, IPOs underperform during the six calendar ye ars after going public.