William G. Christie

Market Structure and the Intraday Pattern of Bid-Ask Spreads for NASDAQ Securities

This article examines the intraday pattern of bid-ask spreads among NASDAQ stocks. We find that spreads are relatively stable throughout the day but narrow significantly near the close. This contrasts with the U-shaped pattern for NYSE stocks reported by Brock and Kleidon and McInish and Wood. We attribute these divergent patterns to structural differences between specialist and dealer markets. The wider spreads for NYSE stocks near periods of market closure may reflect the market power of specialists. The decline in spreads near the close for NASDAQ stocks is consistent with inventory control by individual dealers. Copyright 1995 by University of Chicago Press.

Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks

The relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate. On January 20, 1997, the Securities and Exchange Commission began implementing reforms that would permit the public to compete directly with Nasdaq dealers by submitting binding limit orders. Additionally, superior quotes placed by Nasdaq dealers in private trading venues began to be displayed in the Nasdaq market. We measure the impact of these new rules on various measures of performance, including trading costs and depths. Our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality. Copyright The American Finance Association 1999.

Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news-related trading halts on Nasdaq. For intraday halts that reopen after only a five-minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90-minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.

Dividend yield and expected returns *1: The zero-dividend puzzle

Abstract Previous research examining the relation between dividend yield and equity returns documents a U-shaped pattern arising from the positive CAPM-adjusted average excess return of zero-dividend firms. In contrast, this paper reports that zero-dividend firms earn negative average excess returns relative to firms of similar size. Despite the apparent conformity of these results to the predictions of after-tax asset pricing models, the negative size-adjusted excess returns cannot be drive solely by tax effects. These excess returns, which are concentrated in the initial zero-dividend years and approach - 1% per month, are attributed to possible dividend-expectation effects rather than taxes.

Are Dividend Omissions Truly the Cruelest Cut of All

Signaling and agency cost theories of dividend policy predict that omissions will produce a larger average decline in equity values than will reductions of less than 100 percent. However, this paper identifies a U-shaped relation between announcement day risk-adjusted excess returns and the percentage decline in dividends. The significantly smaller than expected price reaction to dividend omissions cannot be traced to growth opportunities, nor to a tendency for firms to delay omission announcements. While omitting firms provide higher per share dividends within five years of the dividend action than do firms that severely reduce payments, future dividends are unrelated to the markets response.

The changing functional relation between stock returns and dividend yields

Abstract This paper provides a new approach for evaluating whether expected stock returns compensate investors for the tax differential between dividends and capital gains. We estimate the relation between dividend yields and risk-adjusted returns using a technique that does not assume linearity, and we exploit the information in the resulting cross-sectional patterns. Our results reveal a rich variety of nonlinear shapes, the majority of which contradict the hypothesis that equilibrium equity returns reflect the tax differential. The overall evidence does not provide support for any particular hypothesis, implying that no exploitable systematic relation exists between dividend yields and expected returns.

The Rights Offer Puzzle: Clues from the 1930s and 1940s

We study the offer choice between rights and firm commitments for a sample of industrial firms issuing equity in the 1930s and 1940s. Unlike existing studies, our sample is drawn from a time period when rights were as common an offer method for industrial firms as were firm commitments. This sample allows us to perform out-of-sample tests of existing theories of offer choice. Our analysis indicates that firms choosing rights were larger, healthier firms with lower leverage and higher cash flow liquidity. Firms electing the firm commitment method experienced significantly negative size-adjusted returns during the 12 months following the offer, consistent with recent evidence for SEOs. In striking contrast, firms issuing equity through rights were not subject to negative post-offer returns, suggesting that firm commitments were timed to exploit overvaluation while rights offers were not. Finally, we investigate a number of long term factors that could have contributed to the decision to migrate from rights issues to firm commitment.