Multi-Market Trading and Cross-Asset Integration
80 Pages Posted: 16 Sep 2015 Last revised: 16 May 2017
Date Written: April 20, 2017
We study how trading in multiple markets affects cross-asset price dynamics. Using a global sample of cross-listed securities and credit default swaps (CDS), we find that foreign listing improves firm stock-CDS return synchronicity, reduces capital structure arbitrage opportunities, and leads to a greater integration of CDS with the world equity and bond markets. Our findings support the theories of investor attention, as the results are stronger for firms with greater media attention, analyst coverage, search intensity, and for listings in more familiar markets. Thus, we propose that cross-market integration improves cross-asset integration through increased investor attention and firm visibility.
Keywords: G12, G13, G14, G15
JEL Classification: Investor recognition; Limits to arbitrage; Return co-movement; Risk premium
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