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The Choice Of Trading Venue And Relative Price Impact Of Institutional Trading: Adrs Versus The Underlying Securities In Their Local Markets

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  • Sugato Chakravarty

    ()
    (Purdue University)

  • Chiraphol N. Chiyachantana

    ()
    (Singapore Management University)

  • Christine Jiang

    (University of Memphis)

Abstract

We address two important themes associated with institutions’ trading in foreignmarkets: (1) the choice of trading venues (between a company’s listing in its home market and that in theUnited States as anAmerican Depositary Receipt [ADR]) and (2) the comparison of trading costs across the two venues.We identify institutional trading in both venues using proprietary institutional trading data. Overall, our research underscores the intuition that the choice of institutional trading in a stock’s local market or as an ADR is a complex process that embodies variables that measure the relative adverse selection and liquidity at order, stock, and country levels. Institutions route a higher percentage of trades to more liquid markets, and these trades are associated with higher cumulative abnormal returns. We also find that institutional trading costs are generally lower for trading cross-listed stocks on home exchanges even after controlling for selection bias.

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Bibliographic Info

Paper provided by Purdue University, Department of Consumer Sciences in its series Working Papers with number 1011.

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Length: 31 pages
Date of creation: Dec 2011
Date of revision:
Publication status: Published in The Journal of Financial Research , v. XXXIV(4)
Handle: RePEc:csr:wpaper:1011

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Keywords: trading venues; trading costs;

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Cited by:
  1. Michael D. McKenzie, 2007. "Technical Trading Rules in Emerging Markets and the 1997 Asian Currency Crises," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(4), pages 46-73, August.
  2. Silva, Ana Cristina & Chávez, Gonzalo A., 2008. "Cross-listing and liquidity in emerging market stocks," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 420-433, March.

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