Multi-market Trading and Liquidity: Evidence from Cross-listed Companies

Journal of International Financial Markets, Institutions and Money 53, 117-138, March 2018

Posted: 2 Mar 2020

See all articles by Christina V. Atanasova

Christina V. Atanasova

Simon Fraser University

Mingxin Li

Canada Mortgage and Housing Corporation

Date Written: February 1, 2017

Abstract

We examine the relationship between stock liquidity and the difference in domestic and foreign market prices for a sample of 650 international firms cross-listed on a U.S. stock exchange through either an American Depository Receipt (ADR) or an ordinary shares program. We exploit the 2001 change to decimalization pricing and the 2003 U.S. dividend tax cut as quasi natural experiments and find that ADR liquidity decreases the absolute value of the ADR premium. We document a positive relationship between liquidity and price discovery as well as a liquidity effect on the price convergence between the ADRs and their underlying shares. The effect of liquidity on convergence is stronger for stocks with high holding costs and low institutional ownership.

Keywords: Cross listing, Liquidity, ADR premium, Limits to arbitrage

JEL Classification: G10, G12 G15

Suggested Citation

Atanasova, Christina V. and Li, Mingxin, Multi-market Trading and Liquidity: Evidence from Cross-listed Companies (February 1, 2017). Journal of International Financial Markets, Institutions and Money 53, 117-138, March 2018, Available at SSRN: https://ssrn.com/abstract=3530158

Christina V. Atanasova

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Mingxin Li (Contact Author)

Canada Mortgage and Housing Corporation ( email )

700 Montreal Rd
Ottawa, Ontario K1A 0P7
Canada

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