Quote Dynamics of Cross-Listed Stocks
30 Pages Posted: 3 Dec 2015 Last revised: 2 Dec 2016
Date Written: November 1, 2016
This study develops a model to assess the quote dynamics of stocks listed in multiple markets, which allows us to explain the price formation mechanism and the degree of information spillover. We show that this model can be transformed to also assess the dynamics of the spreads, efficient price, and the market's relative premium when trading cross-listed stocks. Applying our model to a sample of 64 Canadian companies listed in both the U.S. and Canada, we document that there is strong intermarket competition among liquidity providers; prices mainly adjust to trades in their respective market, suggesting some degree of informational fragmentation; and U.S. trades have a greater price impact than Canadian trades. We further find that the U.S. market is informationally dominant, due to its more competitive quote-setting behavior and larger incorporation of informational shocks.
Keywords: Market Microstructure, Error-correction, Quote Dynamics, Cross-listings
JEL Classification: C32, G15
Suggested Citation: Suggested Citation