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Migration, Spillovers,and Trade Diversion: The Impact of Internationalization on Stock Market Liquidity

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  • Ross Levine
  • Sergio L. Schmukler

Abstract

What is the impact of firms that cross-list, issue depositary receipts, or raise capital in international stock markets on the liquidity of remaining firms in domestic markets? Using a panel of over 3,200 firms from 55 countries during 1989-2000, we find that internationalization reduces the liquidity of domestic firms through two channels. First, the trading of international firms migrates from domestic to international markets and the reduction in domestic liquidity of international firms has negative spillover effects on domestic firm liquidity. Second, there is trade diversion within domestic markets as liquidity shifts out of domestic firms and into international firms.

Suggested Citation

  • Ross Levine & Sergio L. Schmukler, 2003. "Migration, Spillovers,and Trade Diversion: The Impact of Internationalization on Stock Market Liquidity," NBER Working Papers 9614, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9614
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    Cited by:

    1. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
    2. International Monetary Fund, 2008. "Can Regional Cross-listings Accelerate Stock Market Development? Empirical Evidence from Sub-Saharan Africa," IMF Working Papers 08/281, International Monetary Fund.
    3. Kristin J. Forbes, 2007. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 171-202 National Bureau of Economic Research, Inc.
    4. Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2008. "Finance, Firm Size, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1379-1405, October.
    5. Jochen R. Andritzky, 2007. "Capital Market Development in a Small Country; The Case of Slovenia," IMF Working Papers 07/229, International Monetary Fund.
    6. Beck, Thorsten, 2006. "Creating an efficient financial system : challenges in a global economy," Policy Research Working Paper Series 3856, The World Bank.
    7. Halling, Michael & Pagano, Marco & Randl, Otto & Zechner, Josef, 2005. "Where is the Market? Evidence from Cross-Listings," CEPR Discussion Papers 4987, C.E.P.R. Discussion Papers.
    8. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    9. Sergio L. Schmukler, 2004. "Financial globalization: gain and pain for developing countries," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 39-66.
    10. Sakho, Yaye Seynabou, 2006. "Contagion and firms'internationalization in Latin America : evidence from Mexico, Brazil, and Chile," Policy Research Working Paper Series 4076, The World Bank.
    11. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2004. "The price of inconvertible deposits: the stock market boom during the Argentine crisis," Economics Letters, Elsevier, vol. 83(1), pages 7-13, April.
    12. Olatundun Janet Adelegan, 2009. "The Impact of the Regional Cross-Listing of Stocks on Firm Value in Sub-Saharan Africa," IMF Working Papers 09/99, International Monetary Fund.
    13. Do, Quy-Toan & Levchenko, Andrei A., 2004. "Trade and financial development," Policy Research Working Paper Series 3347, The World Bank.
    14. Mazouz, Khelifa & Daya, Wael & Yin, Shuxing, 2014. "Index revisions, systematic liquidity risk and the cost of equity capital," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 283-298.
    15. Camilleri, Silvio John, 2006. "Strategic Priorities for Stock Exchanges in New EU Member States," MPRA Paper 62494, University Library of Munich, Germany.

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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