The Interactions between Price Discovery, Liquidity and Algorithmic Trading for US-Canadian Cross-Listed Shares

52 Pages Posted: 3 Dec 2015 Last revised: 15 Feb 2017

See all articles by Bart Frijns

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Ivan Indriawan

Auckland University of Technology - Department of Finance

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

Date Written: February 1, 2017

Abstract

We analyze price discovery dynamics for Canadian companies cross-listed on the NYSE from January 2004 to January 2011. We employ a structural vector autoregression to assess the interactions between price discovery, liquidity and algorithmic trading activity. We observe that over time, the U.S. market is gaining dominance in terms of price discovery. Improvements in liquidity increase a market's contribution to price discovery, and vice versa. We find that algorithmic trading activity is negatively related to price discovery, indicating negative externalities of high-frequency trading. These results are robust to regulatory changes in the U.S. and fragmentation in the Canadian financial markets.

Keywords: Market Microstructure, Price Discovery, Cross-Listings

JEL Classification: C32, G15

Suggested Citation

Frijns, Bart and Indriawan, Ivan and Tourani-Rad, Alireza, The Interactions between Price Discovery, Liquidity and Algorithmic Trading for US-Canadian Cross-Listed Shares (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2697829 or http://dx.doi.org/10.2139/ssrn.2697829

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Ivan Indriawan (Contact Author)

Auckland University of Technology - Department of Finance ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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