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The Value of Trading Consolidation: Evidence from the Exercise of Warrants

Yakov Amihud, Beni Lauterbach and Haim Mendelson
The Journal of Financial and Quantitative Analysis
Vol. 38, No. 4 (Dec., 2003), pp. 829-846
DOI: 10.2307/4126745
Stable URL: http://www.jstor.org/stable/4126745
Page Count: 18
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Value of Trading Consolidation: Evidence from the Exercise of Warrants
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Abstract

We study the effect of trading consolidation by examining the response of liquidity and stock price to the exercise of deep in-the-money corporate warrants. This enables a relatively clean test of the value of trading consolidation. The exercise at the warrant expiration is fully anticipated and has no information content. An effect can come from the value of trading consolidation that improves liquidity. Indeed, we find that liquidity and stock prices both increase significantly at warrant expiration. Further, the price increase is positively related to the pre-exercise extent of fragmentation, to post-exercise improvement in stock liquidity, and to the proportional increase in the number of shares following the warrant exercise.

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