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
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: Suggested Citation