Liquidity Gains from Stock Exchange Merger: The Case of CEESEG

Abstract

Merger of stock exchanges is relatively new phenomenon, especially in European context. The effects of such mergers are largely unknown hence studies in this field have a great importance for both scholars and practitioners. Using the newly formed Central European Stock Exchange Group (CEESEG) as an example, this paper studies the effects of merger on liquidity of traded stocks. The results are consistent with the expectation that changes in liquidity will be unevenly distributed among firms with different firms’ characteristics. Firms’ characteristics have been identified through a literature review finding that firm size and foreign exposure are the most important characteristics relevant to post-merger liquidity gains. As far as liquidity is concerned, there is no true measure of it because liquidity cannot be directly measured. Therefore three different measures, each capturing different dimension of liquidity, were identified through the literature review in attempt to proxy liquidity: turnover, volatility and the Amivest ratio. The findings suggest that big firms and firms with foreign exposure experience relatively higher post-merger liquidity gains. The paper finds no consistent evidence that average firm without foreign exposure neither small firms experience higher liquidity. This study contributes to the literature targeting the effects of consolidation and integration of stock exchanges bringing empirical evidence. We also indirectly contributed to the literature on market behavior, particularly the relationship between volatility and liquidity.