Multimarket Trading and Liquidity: A Transaction Data Analysis of Canada U.S. Interlistings

Dice Center Research in Financial Economics Working Paper 98-12

29 Pages Posted: 22 Oct 1998

See all articles by Stephen R. Foerster

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management

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Abstract

We use transaction data for Toronto Stock Exchange (TSE) listed stocks to examine the impact on trading costs of the decision to interlist on a U.S. exchange. We measure trading costs using both ?posted? bid-ask spreads and ?effective? bid-ask spreads that measure actual transaction prices relative to standing bid-ask quotes. After controlling for price level, trade size and trading volume effects, we find that overall ?posted? and ?effective? spreads in the domestic (TSE) market decrease subsequent to the interlisting. However, the decrease in trading costs is concentrated in those TSE stocks that experience a significant shift of total trading volume (TSE and U.S.) to the U.S. exchange after listing. We interpret this result in the context of theories of multi-market trading as a competitive response by TSE market makers to the additional presence of U.S. market makers.

JEL Classification: G15

Suggested Citation

Foerster, Stephen R. and Karolyi, George Andrew, Multimarket Trading and Liquidity: A Transaction Data Analysis of Canada U.S. Interlistings. Dice Center Research in Financial Economics Working Paper 98-12. Available at SSRN: https://ssrn.com/abstract=136715 or http://dx.doi.org/10.2139/ssrn.136715

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

George Andrew Karolyi (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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