International Cross-Listing, Market Quality, and Ownership Rights: An Analysis of the Mexican Stock Market
Posted: 2 Sep 1999
Date Written: June 1994
This paper examines empirically the impact of ADR listing in the United States on the Mexican Stock Exchange. The Mexican Stock Exchange is of particular interest because it is an emerging market that faces competition from highly liquid U.S. ADR markets during exchange hours. In addition, equity issues in Mexico are differentiated by ownership and voting rights. We develop an econometric model to assess the impact of ADR listing on various measures of market quality. The impact of international listing is complex. For shares open to foreign ownership, ADR introduction is associated with higher volatility and lower liquidity, consistent with market fragmentation. However, the bid-ask spreads of such shares decrease after ADR introduction, possibly because of increased competition among domestic liquidity providers to retain order flow. Consistent with this hypothesis, the changes in liquidity and spreads are small and unsystematic for non-voting stock and for issues where ownership was restricted to domestic residents prior to the ADR listing.
JEL Classification: G1, G15
Suggested Citation: Suggested Citation