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Ripples Through Markets: Inter-market Impacts Generated by Large Trades

Indiana University Working Paper

33 Pages Posted: 2 Mar 2005  

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); University of Naples Federico II - CSEF - Center for Studies in Economics and Finance

Date Written: July 5, 2004

Abstract

This paper investigates the impacts of very large trades for cross-listed companies where parallel markets suffer from information frictions. We use a sample of large trades executed on London Stock Exchange's SEAQ-I market for European cross-quoted firms and investigate their impact on home market prices when transparency is opaque. We find that (a) London large trades produce price impacts in home markets even though no timely information is published, (b) market makers appear to pre- and postposition their inventories by splitting orders across markets, and (c) the price discovery process across markets changes significantly around large trades with the foreign market making a significantly bigger contribution to price discovery, even though information opaqueness exists.

Keywords: Cross-listed companies, information across markets, transparency, large trades

JEL Classification: G14, G15, G18

Suggested Citation

Ellul, Andrew, Ripples Through Markets: Inter-market Impacts Generated by Large Trades (July 5, 2004). Indiana University Working Paper. Available at SSRN: https://ssrn.com/abstract=675321 or http://dx.doi.org/10.2139/ssrn.675321

Andrew Ellul (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

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