Migration, Spillovers, and Trade Diversion: The Impact of Internationalization on Stock Market Liquidity
41 Pages Posted: 26 May 2003
Date Written: March 30, 2003
What is the impact of firms that cross-list, issue depositary receipts, or raise capital in international stock markets on the liquidity of remaining firms in domestic markets? Using a panel of over 3,200 firms from 55 countries during 1989-2000, Levine and Schmukler find that internationalization reduces the liquidity of domestic firms through two channels. First, the trading of international firms migrates from domestic to international markets and the reduction in domestic liquidity of international firms has negative spillover effects on domestic firm liquidity. Second, there is trade diversion within domestic markets as liquidity shifts out of domestic firms and into international firms.
This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to understand the effects of financial globalization.
Keywords: International finance, globalization, cross-listing, ADRs, GDRs
JEL Classification: G15, F36, F20
Suggested Citation: Suggested Citation