Quote Dynamics of Cross-Listed Stocks

30 Pages Posted: 3 Dec 2015 Last revised: 2 Dec 2016

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: November 1, 2016

Abstract

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

Frijns, Bart and Indriawan, Ivan and Tourani-Rad, Alireza, Quote Dynamics of Cross-Listed Stocks (November 1, 2016). Asian Finance Association (AsianFA) 2017 Conference. Available at SSRN: https://ssrn.com/abstract=2697831 or http://dx.doi.org/10.2139/ssrn.2697831

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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