Internationalization and Stock Market Liquidity

49 Pages Posted: 5 Feb 2006 Last revised: 3 Jul 2010

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

What is the impact of internationalization (firms raising capital and trading in international markets) on the liquidity of the remaining firms in domestic markets? To address this question, we assemble a panel database of nearly 2,900 firms from 45 emerging economies over the period 1989-2000, constructed from annual and daily data. First, we find evidence of migration. The domestic trading of firms that cross-list or issue depositary receipts in foreign public exchanges tends to decrease, while a significant proportion of their trading activity concentrates in international markets. Second, this migration is negatively related to the liquidity of the remaining firms in their home market through two separate channels. There are liquidity spillovers within markets, with aggregate domestic trading activity being positively associated with the liquidity of individual firms in the same market. Moreover, the proportion of trading abroad is negatively related to the liquidity of firms in the domestic market.

Suggested Citation

Levine, Ross Eric and Schmukler, Sergio, Internationalization and Stock Market Liquidity (December 2005). NBER Working Paper No. w11894. Available at SSRN: https://ssrn.com/abstract=872730

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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National Bureau of Economic Research (NBER)

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Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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