Global Liquidity Provision and Risk Sharing

50 Pages Posted: 22 Jan 2015 Last revised: 22 Jul 2015

Feng Jiao

University of Lethbridge - Faculty of Management

Sergei Sarkissian

McGill University; Yerevan State University

Date Written: July 1, 2015


This study examines the role of international markets for liquidity provision and risk sharing using a full sample of U.S. firms traded on 20 foreign exchanges with stock return and liquidity data from 1950. The tests show that in market downturns the liquidity of cross-listed firms is significantly higher than that of companies that are listed only domestically. This result is especially strong when firms are cross-listed on multiple exchanges, as well as in larger and more liquid markets. The liquidity enhancement from the firm’s presence in foreign stock markets is particularly effective for firms with high return volatility, high foreign income, and high probability of informed trading. The subsequent estimation reveals that foreign trading in firm shares leads to significant reduction in two liquidity betas, which are based on the sensitivity of firm liquidity to its domestic market liquidity and its domestic market return. Our findings therefore highlight the importance of global financial markets for supplying liquidity and reducing liquidity risk.

Keywords: Foreign listing, Funding liquidity, Market segmentation, S&P 500 Index

JEL Classification: G11, G14, G15

Suggested Citation

Jiao, Feng and Sarkissian, Sergei, Global Liquidity Provision and Risk Sharing (July 1, 2015). Available at SSRN: or

Feng Jiao (Contact Author)

University of Lethbridge - Faculty of Management ( email )

4401 University Drive
Lethbridge, Alberta TIK 3M4

Sergei Sarkissian

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
514-398-4876 (Phone)
514-398-3876 (Fax)

Yerevan State University

1 Alex Manoogian Street
Yerevan, 0025

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