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Trading Costs Of Non-U.S. Stocks On The New York Stock Exchange: The Effect Of Institutional Ownership, Analyst Following, And Market Regulation

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  • Christine X. Jiang
  • Jang-Chul Kim
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    Abstract

    We investigate the differences in market microstructure between U.S. and non-U.S. stocks cross-listed on the New York Stock Exchange using a sample of 316 pairs of matched stocks. We find that non-U.S. stocks have wider spreads and larger adverse-selection costs than U.S. stocks even after controlling for macro-level institutional differences. Regression analysis shows that spreads and adverse-selection costs are negatively correlated with institutional ownership and analyst followings. Thus, the higher spreads and adverse-selection costs for non-U.S. stocks can be partly explained by the lower institutional ownership and analyst following of non-U.S. stocks. In addition, we find that although the spreads and adverse-selection costs for non-U.S. stocks are significantly higher before the implementation of Regulation Fair Disclosure (FD), the differences become even greater after Regulation FD, suggesting that Regulation FD has improved the information environment for U.S. stocks. 2005 The Southern Finance Association and the Southwestern Finance Association.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 28 (2005)
    Issue (Month): 3 ()
    Pages: 439-459

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    Handle: RePEc:bla:jfnres:v:28:y:2005:i:3:p:439-459

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    Cited by:
    1. Kenneth Small & James Wansley & Matthew Hood, 2012. "The impact of security concentration on adverse selection costs and liquidity: an examination of exchange traded funds," Journal of Economics and Finance, Springer, vol. 36(2), pages 261-281, April.
    2. Wang, Ashley W. & Zhang, Gaiyan, 2009. "Institutional ownership and credit spreads: An information asymmetry perspective," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 597-612, September.
    3. Chelley-Steeley, Patricia & Park, Keebong, 2010. "The adverse selection component of exchange traded funds," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 65-76, January.

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