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Multi-market trading and liquidity: Evidence from cross-listed companies

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  • Atanasova, Christina
  • Li, Mingxin

Abstract

We examine the relationship between stock liquidity and the difference in domestic and foreign market prices for a sample of 650 international firms cross-listed on a U.S. stock exchange through either an American Depository Receipt (ADR) or an ordinary shares program. We exploit the 2001 change to decimalization pricing and the 2003 U.S. dividend tax cut as quasi-natural experiments and find that ADR liquidity decreases the absolute value of the ADR premium. We document a positive relationship between liquidity and price discovery as well as a liquidity effect on the price convergence between the ADRs and their underlying shares. The effect of liquidity on convergence is stronger for stocks with high holding costs and low institutional ownership.

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  • Atanasova, Christina & Li, Mingxin, 2018. "Multi-market trading and liquidity: Evidence from cross-listed companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 117-138.
    • Handle: RePEc:eee:intfin:v:53:y:2018:i:c:p:117-138
    DOI: 10.1016/j.intfin.2017.09.015
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    Cited by:

    1. Jonathan Batten & Xuan Vinh Vo, 2019. "Liquidity And Firm Value In An Emerging Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 365-376, March.
    2. Xuechun Zhang & Ruihui Xu & Xue Liu, 2022. "Premiums between Cross‐listed Shares: Determinants and Assessment of Financial Reform Policy Effectiveness," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(3), pages 75-99, May.

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    More about this item

    Keywords

    Cross listing; Liquidity; ADR premium; Limits to arbitrage;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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