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Splitting Orders in Fragmented Markets; evidence from cross-listed stocks

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  • Menkveld, A.J.

Abstract

A number of recent theoretical studies have explored trading in fragmented markets, e.g. Biais et al. (2000), a phenomenon increasingly witnessed in modern markets. The key assumption generating the results is that there is at least one liquidity demander exploiting access to all markets by optimally splitting orders across markets. This paper seeks to test this assumnption in a natural experiment involving Dutch stocks that are traded both in Amsterdam and New York. The results confirm the presence of rational, order splitting traders. This explains the increased volume and relatively large and persistent price changes for the overlapping period.

Suggested Citation

  • Menkveld, A.J., 2001. "Splitting Orders in Fragmented Markets; evidence from cross-listed stocks," Econometric Institute Research Papers EI 2001-20, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:6866
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    References listed on IDEAS

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    1. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
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    4. Hupperets, Erik C. J. & Menkveld, Albert J., 2002. "Intraday analysis of market integration: Dutch blue chips traded in Amsterdam and New York," Journal of Financial Markets, Elsevier, vol. 5(1), pages 57-82, January.
    5. Gemmill, Gordon, 1996. "Transparency and Liquidity: A Study of Block Trades on the London Stock Exchange under Different Publication Rules," Journal of Finance, American Finance Association, vol. 51(5), pages 1765-1790, December.
    6. Glosten, Lawrence R, 1994. "Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-1161, September.
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    Cited by:

    1. Boehmer, Beatrice & Boehmer, Ekkehart, 2003. "Trading your neighbor's ETFs: Competition or fragmentation?," Journal of Banking & Finance, Elsevier, vol. 27(9), pages 1667-1703, September.

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    More about this item

    Keywords

    asset pricing; cross-listed stocks; financial markets; fragmented markets; market efficiency; order splitting;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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