An examination of the stock prices of 319 companies that moved from the over-the- counter markets to the New York Stock Exchange over the period January 1966 through December 1977 (that is, both before and after the introduction of the National Association of Securities Dealers’ automated quotation system) reveals a definite pattern in stock price performance. Typically, stocks performed exceptionally well over the one year prior to the date the company filed an application to list. Stocks continued to perform well over the interval between the application date and the date on which actual listing occurred, after which price tended to decline over the next four to six weeks before stabilizing.

This apparently predictable pattern of security returns suggests a potentially profitable investment strategy based on publicly available information. The strategy involves buying a stock when it is announced that a company has filed a formal application to list on the NYSE, liquidating the long position and simultaneously selling the stock short once it has actually become listed, and liquidating the short position six weeks after listing. Over the 1971–77 period, such a strategy would have resulted in an annualized, market-adjusted return, net of trading costs, of 5.75 per cent.