Internationalization and Stock Market Liquidity

Ross Levine () and Sergio Schmukler ()

No 11894, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G15 F36 F20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fin and nep-fmk
Date: 2005-12
Note: CF IFM
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