Quote dynamics of cross-listed stocks

Bart Frijns, Ivan Indriawan*, Alireza Tourani-Rad

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We develop a model to assess the quote dynamics of stocks listed in multiple markets. This model allows us to explain the price formation mechanism and the degree of information spillover. We show that this model can be transformed to assess the dynamics of the spreads, the efficient price, and the market's relative premium for cross‐listed stocks. Applying our model to a sample of 64 Canadian companies listed in the United States and Canada, we document strong intermarket competition among liquidity providers; prices mainly adjust to trades in their respective market, suggesting some degree of informational frictions; and U.S. trades have a greater price impact than Canadian trades. We further find that the U.S. market is informationally dominant due to its more competitive quote‐setting behavior and larger incorporation of informational shocks.
Original languageEnglish
JournalInternational Review of Finance
DOIs
Publication statusE-pub ahead of print - 14 Nov 2019
Externally publishedYes

Keywords

  • cross-listings
  • error-correction model
  • market microstructure
  • quote dynamics

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