Where is the Market? Evidence from Cross-Listings in the U.S.
Swedish House of Finance
University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
WU Vienna University of Economics and Business
Vienna University of Economics and Business
We explore two main questions. First, can two markets for a company's shares coexist and, if so, what determines the distribution of trading volume across them? For firms cross-listed in the U.S. we find that in most cases the U.S. market attracts a significant fraction of total trading volume, and tends to be more active when the company is based in a country that is geographically close, has low financial development and relatively poor anti-insider trading protection. Moreover, the relative size of the U.S. market is larger if the company is small, volatile and high-tech. Second, we ask whether developing an active foreign market entails lower domestic trading activity. We find that for firms based in developed markets, the domestic turnover rate increases in the wake of cross-listing and remains permanently higher. In contrast, emerging market firms tend to experience a decrease in domestic trading activity.
Number of Pages in PDF File: 39
Keywords: cross-listing, trading volume, trade creation
JEL Classification: G15, G30
Date posted: March 14, 2006