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

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Author Info
Menkveld, Albert J. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

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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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Publisher 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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Related research
Keywords: Cross-listing; Trading; Fragmentation; High-frequency;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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