Intra-Dealer Integration

Abstract

This paper examines the quotation behavior of dealers who made markets in the same stocks on both NASDAQ and either EASDAQ or the LSE. Whereas previous studies examine international integration at the market level, we examine integration at the dealer level. In other words, do dealers within the same market-making firm use information from their arm on the opposite side of the Atlantic in forming their own quotes? We find that while there is some evidence of integration at the market level, integration is hard to detect at the dealer level. The results are largely unaffected by differences in fungibility between our two samples.

Keywords: Intra-Dealer Integration, Price Discovery, Cointegration, Fungibility

JEL Classification: G1, G14, G15