Trading Imbalances, Liquidity, and the Law of One Price

29 Pages Posted: 19 Mar 2010

See all articles by Mark S. Seasholes

Mark S. Seasholes

Arizona State University (ASU)

Clark Liu

Tsinghua University - PBC School of Finance

Date Written: March 15, 2010

Abstract

This paper studies trading and prices of dual/cross-listed stocks (i.e., equities from a single company that trade in more than one country). We focus on PRC rms with shares listed in Shanghai and Hong Kong. well-publicized index tracks the average price disparity across the two exchanges and shows signi cant variation over time. We show that di erences in order imbalances (in Shanghai vs Hong Kong) explain contemporaneous changes in relative prices at daily and weekly frequencies. Our results help clarify liquidity-driven explanations from sentiment-based ones.

Keywords: Law of One Price, Cross-Listings, Order Imbalances

JEL Classification: G1, G12

Suggested Citation

Seasholes, Mark S. and Liu, Clark, Trading Imbalances, Liquidity, and the Law of One Price (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=1571951 or http://dx.doi.org/10.2139/ssrn.1571951

Mark S. Seasholes (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Clark Liu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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