Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-23T22:19:52.071Z Has data issue: false hasContentIssue false
  • English
  • Français

Volume Dynamics and Multimarket Trading

Published online by Cambridge University Press:  01 March 2013

Michael Halling ,
Pamela C. Moulton  and
Marios Panayides
Michael Halling
Affiliation:
[email protected], Stockholm School of Economics, Department of Finance, Box 6501, Stockholm SE-113 83, Sweden and University of Utah
Pamela C. Moulton
Affiliation:
[email protected], Cornell University, School of Hotel Administration, 435A Statler Hall, Ithaca, NY 14853
Marios Panayides
Affiliation:
[email protected], University of Pittsburgh, Katz Graduate School of Business, 334 Mervis Hall, Pittsburgh, PA 15260.
Get access Rights & Permissions [Opens in a new window]

Abstract

The trading of shares of the same firm in multiple markets has become common over the last 30 years, but there is little empirical evidence on the extent to which investors actively exploit multimarket environments. We introduce a volume-based measure of multimarket trading to address this question. Analyzing a large set of cross-listed firms, we find higher multimarket trading among markets with similar designs and strong enforcement of insider trading laws and for firms with higher institutional ownership. These findings are important for firms evaluating the benefits of cross listing and for markets competing for order flow.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 2 , April 2013 , pp. 489 - 518
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Admati, A. R., and Pfleiderer, P.. “A Theory of Intraday Patterns: Volume and Price Variability.” Review of Financial Studies, 1 (1988), 3–40.CrossRefGoogle Scholar
Ajinkya, B., and Jain, P.. “The Behavior of Daily Stock Market Trading Volume.” Journal of Accounting and Economics, 11 (1989), 331–359.CrossRefGoogle Scholar
Amihud, Y. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Baruch, S.; Karolyi, G. A.; and Lemmon, M.. “Multimarket Trading and Liquidity: Theory and Evidence.” Journal of Finance, 62 (2007), 2169–2200.CrossRefGoogle Scholar
Bekaert, G., and Harvey, C. R.. “Time-Varying World Market Integration.” Journal of Finance,50 (1995), 403–444.Google Scholar
Bekaert, G.; Harvey, C. R.; and Lumsdaine, R.. “Dating the Integration of World Equity Markets.” Journal of Financial Economics, 65 (2002a), 203–248.CrossRefGoogle Scholar
Bekaert, G.; Harvey, C. R.; and Lumsdaine, R.. “The Dynamics of Emerging Markets Equity Flows.” Journal of International Money and Finance, 15 (2002b), 1137–1187.Google Scholar
Bekaert, G.; Harvey, C. R.; Lundblad, C. T.; and Siegel, S.. “What Segments Equity Markets?” Review of Financial Studies, 24 (2011), 3841–3890.CrossRefGoogle Scholar
Bekaert, G.; Harvey, C. R.; and Ng, A.. “Market Integration and Contagion.” Journal of Business,78 (2005), 39–69.CrossRefGoogle Scholar
Bhattacharya, U., and Daouk, H.. “The World Price of Insider Trading.” Journal of Finance, 57 (2002), 75–108.CrossRefGoogle Scholar
Boehmer, E., and Kelley, E.. “Institutional Investors and the Informational Efficiency of Prices.” Review of Financial Studies, 22 (2009), 3563–3594.CrossRefGoogle Scholar
Bris, A.; Goetzmann, W.; and Zhu, N.. “Efficiency and the Bear: Short Sales and Markets around the World.” Journal of Finance, 62 (2007), 1029–1079.CrossRefGoogle Scholar
Caballe, J. V., and Krishnan, M.. “Imperfect Competition in a Multi-Security Market with Risk Neutrality.” Econometrica, 62 (1994), 695–704.CrossRefGoogle Scholar
Campbell, J. Y., and Hamao, Y.. “Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration.” Journal of Finance, 47 (1992), 43–69.Google Scholar
Carrieri, F.; Errunza, V.; and Hogan, K.. “Characterizing World Market Integration through Time.” Journal of Financial and Quantitative Analysis, 41 (2007), 511–540.CrossRefGoogle Scholar
Chakravarty, S.; Chiyachantana, C. N.; and Jiang, C.. “The Choice of Trading Venue and Relative Price Impact of Institutional Trading: ADRs versus the Underlying Securities in Their Local Markets.” Journal of Financial Research, 34 (2011), 537–567.CrossRefGoogle Scholar
Chan, J. S. P.; Hong, D.; and Subrahmanyam, M. G.. “A Tale of Two Prices: Liquidity and Asset Prices in Multiple Markets.” Journal of Banking and Finance, 32 (2008), 947–960.CrossRefGoogle Scholar
Chinn, M. D., and Ito, H.. “A New Measure of Financial Openness.” Journal of Comparative Policy Analysis, 10 (2008), 309–322.Google Scholar
Chiyachantana, C. N.; Jain, P. K.; Jiang, C.; and Wood, R. A.. “International Evidence on Institutional Trading Behavior and Price Impact.” Journal of Finance, 59 (2004), 869–898.CrossRefGoogle Scholar
Chordia, T.; Roll, R.; and Subrahmanyam, A.. “Market Liquidity and Trading Activity.” Journal of Finance, 56 (2001), 501–530.CrossRefGoogle Scholar
Chowdhry, B., and Nanda, V.. “Multimarket Trading and Market Liquidity.” Review of Financial Studies, 4 (1991), 483–511.CrossRefGoogle Scholar
Cohen, L., and Frazzini, A.. “Economic Links and Predictable Returns.” Journal of Finance, 63 (2008), 1977–2011.CrossRefGoogle Scholar
Edison, H. J., and Warnock, F.. “A Simple Measure of the Intensity of Capital Controls.” Journal of Empirical Finance, 10 (2003), 81–103.CrossRefGoogle Scholar
Ellul, A.; Shin, H. S.; and Tonks, I.. “Opening and Closing the Market: Evidence from the London Stock Exchange.” Journal of Financial and Quantitative Analysis, 40 (2005), 779–801.CrossRefGoogle Scholar
Feng, L., and Seasholes, M. S.. “Correlated Trading and Location.” Journal of Finance, 59 (2004), 2117–2144.CrossRefGoogle Scholar
Foucault, T., and Menkveld, A.. “Competition for Order Flow and Smart Order Routing Systems.” Journal of Finance, 63 (2008), 119–158.CrossRefGoogle Scholar
Gagnon, L., and Karolyi, G. A.. “Information, Trading Volume, and International Stock Return Comovements: Evidence from Cross-Listed Stocks.” Journal of Financial and Quantitative Analysis, 44 (2009), 953–986.CrossRefGoogle Scholar
Gagnon, L., and Karolyi, G. A.. “Multimarket Trading and Arbitrage.” Journal of Financial Economics, 97 (2010), 53–80.CrossRefGoogle Scholar
Gagnon, L., and Karolyi, G. A.. “Do International Cross-Listings Still Matter?” In Evidence on Financial Globalization and Crises, Beck, T., Schmukler, S., and Claessens, S., eds. Elsevier North-Holland Publishers, forthcoming (2013).Google Scholar
Greene, W. H. Econometric Analysis, 5th ed.Boston, MA: Prentice Hall (2003).Google Scholar
Halling, M.; Pagano, M.; Randl, O.; and Zechner, J.. “Where Is the Market? Evidence from Cross-Listings in the United States.” Review of Financial Studies, 21 (2008), 725–761.CrossRefGoogle Scholar
Hupperets, E., and Menkveld, A.. “Intraday Analysis of Market Integration: Dutch Blue Chips Traded in Amsterdam and New York.” Journal of Financial Markets, 5 (2002), 57–82.CrossRefGoogle Scholar
Jain, P. “Financial Market Design and the Equity Premium: Electronic versus Floor Trading.” Journal of Finance, 60 (2005), 2955–2985.CrossRefGoogle Scholar
Jorion, P., and Schwartz, E.. “Integration vs. Segmentation in the Canadian Stock Market.” Journal of Finance, 41 (1986), 603–614.CrossRefGoogle Scholar
Morgan, JP. “Buy-Side Survey: ADR Investigation.”www.adr.com (2003).Google Scholar
Kim, M.; Szakmary, A. C.; and Mathur, I.. “Price Transmission Dynamics between ADRs and Their Underlying Foreign Securities.” Journal of Banking and Finance, 24 (2000), 1359–1382.CrossRefGoogle Scholar
King, M., and Wadhwani, S.. “Transmission of Volatility between Stock Markets.” Review of Financial Studies, 3 (1990), 5–33.CrossRefGoogle Scholar
Kodres, L. E., and Pritsker, M.. “A Rational Expectations Model of Financial Contagion.” Journal of Finance, 57 (2002), 769–799.CrossRefGoogle Scholar
Kyle, A., and Xiong, W.. “Contagion as a Wealth Effect.” Journal of Finance, 56 (2001), 1401–1440.CrossRefGoogle Scholar
Lo, A. W., and Wang, J.. “Trading Volume: Definitions, Data Analysis, and Implications for Portfolio Theory.” Review of Financial Studies, 13 (2000), 257–300.CrossRefGoogle Scholar
Lo, A. W., and Wang, J.. “Stock Market Trading Volume.” In The Handbook of Financial Econometrics, vol. 2, Ait-Sahalia, Y. and Hansen, L., eds. Amsterdam: North-Holland (2010).Google Scholar
Menkveld, A. “Splitting Orders in Overlapping Markets: A Study of Cross-Listed Stocks.” Journal of Financial Intermediation, 17 (2008), 145–174.CrossRefGoogle Scholar
Meulbroek, L. “An Empirical Analysis of Insider Trading and the Stock Market.” Journal of Finance, 47 (1990), 1661–1699.CrossRefGoogle Scholar
Mittoo, U. R. “Additional Evidence on Integration in the Canadian Stock Market.” Journal of Finance, 47 (1992), 2035–2054.CrossRefGoogle Scholar
Moulton, P., and Wei, L.. “A Tale of Two Time Zones: The Impact of Substitutes on Cross-Listed Stock Liquidity.” Journal of Financial Markets, 12 (2009), 570–591.CrossRefGoogle Scholar
O’Hara, M., and Ye, M.. “Is Market Fragmentation Harming Market Quality?” Journal of Financial Economics, 100 (2011), 459–474.CrossRefGoogle Scholar
Pagano, M. “Trading Volume and Asset Liquidity.” Quarterly Journal of Economics, 104 (1989), 255–274.CrossRefGoogle Scholar
Pagano, M.; Röell, A.; and Zechner, J.. “The Geography of Equity Listing: Why Do Companies List Abroad?” Journal of Finance, 57 (2002), 2651–2694.CrossRefGoogle Scholar
Pasquariello, P. “Information Heterogeneity and Financial Contagion.” Review of Financial Studies, 20 (2007), 391–426.CrossRefGoogle Scholar
Pasquariello, P., and Vega, C.. “Strategic Cross-Trading in the U.S. Stock Market.” Review of Finance, forthcoming (2013).Google Scholar
Petersen, M. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435–480.CrossRefGoogle Scholar
Pukthuanthong, K., and Roll, R.. “Global Market Integration: An Alternative Measure and Its Application.” Journal of Financial Economics, 94 (2009), 214–232.CrossRefGoogle Scholar
Sanders, R., and Zdanowicz, J.. “Target Firm Abnormal Returns and Trading Volume around the Initiation of Change in Control Transactions.” Journal of Financial and Quantitative Analysis,27 (1992), 109–129.CrossRefGoogle Scholar
Sexton, R. J.; Kling, C. L.; and Carman, H. F.. “Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery.” American Journal of Agricultural Economics, 73 (1991), 568–580.CrossRefGoogle Scholar
Thompson, S. “Simple Formulas for Standard Errors that Cluster by Both Firm and Time.” Journal of Financial Economics, 99 (2011), 1–10.CrossRefGoogle Scholar
Werner, I. M., and Kleidon, A. W.. “U.K. and U.S. Trading of British Cross-Listed Stocks: An Intraday Analysis of Market Integration.” Review of Financial Studies, 9 (1996), 619–664.CrossRefGoogle Scholar
Yuan, K. “Asymmetric Price Movement and the Borrowing Constraint: A REE Model of Crises, Contagion, and Confusion.” Journal of Finance, 60 (2005), 379–411.CrossRefGoogle Scholar