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Internationalization and Stock Market Liquidity

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Author Info
Ross Levine
Sergio Schmukler

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Abstract

What is the impact of internationalization (firms raising capital and trading in international markets) on the liquidity of the remaining firms in domestic markets? To address this question, we assemble a panel database of nearly 2,900 firms from 45 emerging economies over the period 1989-2000, constructed from annual and daily data. First, we find evidence of migration. The domestic trading of firms that cross-list or issue depositary receipts in foreign public exchanges tends to decrease, while a significant proportion of their trading activity concentrates in international markets. Second, this migration is negatively related to the liquidity of the remaining firms in their home market through two separate channels. There are liquidity spillovers within markets, with aggregate domestic trading activity being positively associated with the liquidity of individual firms in the same market. Moreover, the proportion of trading abroad is negatively related to the liquidity of firms in the domestic market.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11894.

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Date of creation: Dec 2005
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Handle: RePEc:nbr:nberwo:11894

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F20 - International Economics - - International Factor Movements and International Business - - - General

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  1. Claessens, Stijn & Schmukler, Sergio L., 2007. "International financial integration through equity markets : which firms from which countries go global ?," Policy Research Working Paper Series 4146, The World Bank. [Downloadable!]
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  2. Foucault, Thierry & Gehrig, Thomas, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," CEPR Discussion Papers 5722, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Levy Yeyati, Eduardo & Schmukler, Sergio L. & Van Horen, Neeltje, 2006. "International financial integration through the law of one price," Policy Research Working Paper Series 3897, The World Bank. [Downloadable!]
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  4. Giannetti, Mariassunta & Yu, Xiaoyun, 2007. "Favouritism or Markets in Capital Allocation?," CEPR Discussion Papers 6124, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Alberto Chong & Florencio López-de-Silanes, 2007. "Corporate Governance and Firm in Latin America," RES Working Papers 1039, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Comparative advantage, demand for external finance, and financial development," Policy Research Working Paper Series 3889, The World Bank. [Downloadable!]
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  7. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2006. "Internationalization and the evolution of corporate valuation," Policy Research Working Paper Series 3933, The World Bank. [Downloadable!]
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  8. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Capital market development : whither Latin America ?," Policy Research Working Paper Series 4156, The World Bank. [Downloadable!]
  9. Van Horen, Neeltje & Schmukler, Sergio L. & Yeyati, Eduardo Levy, 2007. "Emerging market liquidity and crises," Policy Research Working Paper Series 4445, The World Bank. [Downloadable!]
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