Academic journal article Academy of Accounting and Financial Studies Journal

Trading Bell at the NASDAQ

Academic journal article Academy of Accounting and Financial Studies Journal

Trading Bell at the NASDAQ

Article excerpt

ABSTRACT

Earlier research has shown that significant media events related to a stock generate investor reactions and hence tend to affect the stock price, usually on a very short-term basis. In this paper, we investigate the information content of the important media event of ringing of the trading bell at the NASDAQ. We picked a sample of 374 opening bell-ringing events during the years 2006 through 2008. We were careful to choose only those bell ringing events that were not in tandem with any concurring event of economic significance such as an IPO, a launch of a new product etc. We fit a standard market model and test for the presence of abnormal returns around the event date. The evidence suggests that ringing the trading bell at the NASDAQ is a non-event in terms of having effect on stock prices and hence the markets are efficient.

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INTRODUCTION

The ringing of the trading bell signify the start of the NASDAQ's trading day, at 9:30 AM The trading bell is considered to be a part of the NASDAQ heritage and the ringing of the bell is an honor normally reserved for governmental officials, international dignitaries visiting the New York City, heads of listed companies and to celebrate certain special occasions related to New York. There has been some controversy regarding the selection process of the companies which are invited to ring the trading bell. NASDAQ states that the companies which are selected to ring the trading bell should have a minimum market capitalization of $500 m for the opening bell and $250 m for the closing bell but they have also exercised a waiver of these requirements many times in the past. There has also been some controversy regarding selection of some companies which had been undergoing investigation for fraud for example take the case of Take-Two Interactive, Inc., which rang the opening bell for Nasdaq on April 11 of last year. At the time of the bell ringing, Take-Two Interactive had already been named as the target of an accounting fraud probe by the SECs enforcement division, and was trying to negotiate a settlement deal with the regulators. The NASDAQ's opening ceremonies are believed to be amongst the most widely viewed daily TV events in the world. Companies use this bell ringing event to celebrate various milestones. Numerous listed companies have used this event to launch their products and hence try to increase their visibility in the market. This public event is also used to celebrate launch of IPO, spin-offs, mergers, transfer of listing from a different exchange as NYSE or AMEX, name and ticker change of the company, retirement of a senior executive etc. The invitation to ring the trading bell is also, sometimes, extended to companies simply to mark anniversary of their listing on the NASDAQ or to mark an anniversary of the firm's incorporation.

This paper investigates whether media attention generated by the NASDAQ bell ringing event systematically affects stock prices. Now, normally, we would expect stock prices to react to important economie events such as announcing of an IPO, spin-offs, mergers and acquisitions, launch of a new product, transfer from another exchange and hence we would expect any stock price reaction around the event date to be a result of these events rather than the due to the media attention generated by the bell ringing event itself. So to isolate the effect of the bell ringing event itself, we investigate the stock price reaction only for those firms that were invited to ring the opening or closing bell to celebrate what we consider to be "economically insignificant events" such as celebrating the anniversary of listing or incorporation, name or ticker change, or simply a NASDAQ visit etc. The evidence seems to suggest that media attention generated from this trading bell-ringing event doesn't systematically affect stock prices. The paper proceeds as follows. In section 2 we review some earlier papers related to this research area, in section 3 we discuss the sample selection process, in section 4 we discuss the empirical model, in section 5 we discuss the implications of the results and in section 6 we conclude. …

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