Stock market booms as liquidity improvements lead to reduced trading costs.
The study looked at almost 900 stocks that moved from Nasdaq to NYSE or Amex between 1971 and 1994. They found that when stocks moved to NYSE or Amex, measures of liquidity like bid-ask spread, trading volume, and stock price precision improved in different ways. The study showed that reductions in trading costs and pricing error volatility explained why the stock market responded positively to the exchange listing. This means that liquidity is not just about bid-ask spread, but has many different aspects.