Additions to the NASDAQ National Market System: An Analysis of Stock Returns and Trading Volume

The information effects associated with the addition of stocks to the National Market System (NMS) of the National Association of Securities Dealers Automatic Quotation (NASDAQ) system are analyzed. In particular, stock returns and trading activity around the event day are examined to determine if addition to the NMS is a "good" event. A good event is defined as positive excess returns and increased trading activity. With regard to stock returns, the event of addition to the NMS appears to be a positive one. However, it appears to be more positive for low market value stocks relative to high market value stocks. With regard to trading activity, results indicate that trading in stocks added to the NMS is higher in the post-addition period relative to control and pre-addition periods. Proposed changes to the requirements for inclusion on the NMS make it more difficult for a stock to be added. These changes and the results suggest that addition may not provide any significant positive impact to the stock's return.