EVIDENCE REGARDING A SEGMENTED STOCK MARKET*

Abstract

FINANCIAL WRITERS discuss the New York Stock Exchange (NYSE), the American Stock Exchange (ASE), and the Over-the-Counter market (OTC) in separate terms because: (1) there is little or no overlap in the stocks in the three locations, (2) requirements for listing or trading among the three markets differ, and (3) there are variations in procedures for purchase and sale of stock. Little attention, however, has been given to the notion that these geographically separated markets might in fact have fundamental economic characteristics that distinguish them. Evidence that the three market segments are considered virtually synonymous is provided by the fact that the most widely quoted stock market indicator series (and in most cases the only indicators mentioned) are the Dow-Jones 30 Industrials, the Standard and Poor's 425 Industrials, and recently the New York Stock Exchange Index. A seldom-noted fact, and one of considerable importance, is that all of these stock market indicators limit their samples to stocks listed on the New York Stock Exchange. Employing one of these indicators to describe what is happening to common stock prices in general implies that either the NYSE is the only relevant segment of the stock market, or that as the NYSE goes, so goes all other segments of the stock market. The notion that the NYSE is the only relevant segment of the market can probably be dismissed as unrealistic. While numerous investors, both individual and institutional, limit their activities to the NYSE, there are many more security issues traded OTC than on the NYSE.' While the NYSE is dominant in terms of the value of transactions, it comprises only about 50 to