Ripples Through Markets: Inter-Market Impacts Generated by Large Trades
Indiana University Working Paper
33 Pages Posted: 2 Mar 2005
Date Written: July 5, 2004
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: Suggested Citation