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Splitting orders in overlapping markets: a study of cross-listed stocks

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  • Menkveld, Albert J.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

Abstract

Securities are increasingly traded through multiple venues. Chowdhry and Nanda (1991) show that sophisticated investors benefit by splitting orders across markets at the cast of local investors who only trade through one venue. If trading hours do not perfectly overlap, we can test for order-splitting by studying trading in the overlap visða-vis the non-overlap. We consider trading in NYSE-listed British and Dutch stocks an ideal experiment and tailor the model to this setting. We then extend it by allowing sophisticated investors to time their trades as in Admati and Pfleiderer (1988). We document increased volatility, increased volume, and unchanged market depth for the overlap, consistent with our predictions. Order-splitting is further evidenced through positive correlation in order imbalance across markets, controlling for arbitrage trades, synchronous information arrival, and microstructure effects

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0003.

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Date of creation: 2006
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Handle: RePEc:dgr:vuarem:2006-3

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Web page: http://www.feweb.vu.nl

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Keywords: Cross-listing; Trading; Fragmentation; High-frequency;

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Cited by:
  1. Suleyman Cetintas & Luo Si & Sugato Chakravarty & Hans Aagard & Kyle Bowen, 2011. "Learning to Identify Students’ Relevant and IrrelevantQuestions in a Micro-blogging Supported Classroom," Working Papers 1010, Purdue University, Department of Consumer Sciences.
  2. Otsubo, Yoichi, 2014. "International cross-listing and price discovery under trading concentration in the domestic market: Evidence from Japanese shares," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 36-51.
  3. Sugato Chakravarty & Chiraphol N. Chiyachantana & Christine Jiang, 2011. "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, Southern Finance Association & Southwestern Finance Association, vol. 34(4), pages 537-567, December.
  4. Foucault, Thierry & Gehrig, Thomas, 2008. "Stock price informativeness, cross-listings, and investment decisions," Journal of Financial Economics, Elsevier, vol. 88(1), pages 146-168, April.
  5. Jaiswal-Dale, Ameeta & Jithendranathan, Thadavillil, 2009. "Transmission of shocks from cross-listed markets to the return and volatility of domestic stocks," Journal of Multinational Financial Management, Elsevier, vol. 19(5), pages 395-408, December.
  6. Moulton, Pamela C. & Wei, Li, 2009. "A tale of two time zones: The impact of substitutes on cross-listed stock liquidity," Journal of Financial Markets, Elsevier, vol. 12(4), pages 570-591, November.
  7. Goldstein, Michael A. & Shkilko, Andriy V. & Van Ness, Bonnie F. & Van Ness, Robert A., 2008. "Competition in the market for NASDAQ securities," Journal of Financial Markets, Elsevier, vol. 11(2), pages 113-143, May.

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