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Multimarket Trading and Liquidity: Theory and Evidence
Author(s) -
BARUCH SHMUEL,
ANDREW KAROLYI G.,
LEMMON MICHAEL L.
Publication year - 2007
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2007.01272.x
Subject(s) - market liquidity , stock exchange , business , financial economics , stock (firearms) , trading strategy , econometrics , monetary economics , empirical evidence , algorithmic trading , economics , finance , mechanical engineering , engineering , philosophy , epistemology
We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross‐listed stocks. The model predicts that the trading volume of a cross‐listed stock is proportionally higher on the exchange in which the cross‐listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non‐U.S. stocks cross‐listed on major U.S. exchanges.