Transparency and Liquidity in a Multi-Market Setting

41 Pages Posted: 28 May 2021

See all articles by Pouyan Ghazizadeh

Pouyan Ghazizadeh

Amsterdam Business School - University of Amsterdam

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Dominik Rösch

State University of New York at Buffalo - School of Management

Date Written: May 25, 2021

Abstract

This study examines the effect of firm-level transparency on liquidity and trading in a multi-market setting, using the market for American Depository Receipts (ADR) as an example. Theory predicts competing effects of transparency on liquidity differences between stocks trading domestically and stocks trading in a foreign market, depending on why the stock trades in multiple markets. We show that an increase in transparency shifts part of foreign trading to the domestic market, yet improves foreign liquidity more than domestic liquidity and reduces foreign liquidity comovement. Collectively, our results show that transparency benefits foreign investors more than domestic investors and, consequently, may foster multi-market trading.

Keywords: transparency, liquidity, trading volume, American Depository Receipts

JEL Classification: F30, G12, G15, M41

Suggested Citation

Ghazizadeh, Pouyan and Peek, Erik and Rösch, Dominik, Transparency and Liquidity in a Multi-Market Setting (May 25, 2021). Available at SSRN: https://ssrn.com/abstract=3852831 or http://dx.doi.org/10.2139/ssrn.3852831

Pouyan Ghazizadeh

Amsterdam Business School - University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Erik Peek (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-08
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Dominik Rösch

State University of New York at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

HOME PAGE: http://dominikroesch.com

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