Exchange Trading Rules, Governance, and Trading Location of Cross-Listed Stocks

50 Pages Posted: 7 May 2013 Last revised: 2 Jul 2014

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: April 10, 2013

Abstract

This paper shows stock exchange trading rules are of central importance for the trading location of cross-listed stocks. We consider various measures of sovereign governance and shareholder rights across both developed and emerging countries to assess the complementary effects of other legal and institutional drivers of trading activity. The data indicate that the proportion of trades that occurs on an exchange increases at a decreasing rate with the strength of stock exchange trading rules. The effectiveness of stock exchange rules increases with the strength of regulatory institutions in the country hosting the stock exchange. Furthermore, corroborating with our full sample findings, difference-in-difference tests indicate the promulgation of Markets in Financial Instruments Directive (MiFID), which strengthened trading rules within the European Union (EU), has increased the amount of trade in the EU.

Keywords: trading rules, governance, cross-listing, law and finance

JEL Classification: G15, G38, K22

Suggested Citation

Cumming, Douglas J. and Hou, Wenxuan and Wu, Eliza, Exchange Trading Rules, Governance, and Trading Location of Cross-Listed Stocks (April 10, 2013). Available at SSRN: https://ssrn.com/abstract=2261521 or http://dx.doi.org/10.2139/ssrn.2261521

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Wenxuan Hou

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Eliza Wu (Contact Author)

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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