Transparency and Liquidity in a Multi-Market Setting

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: 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