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The interactions between price discovery, liquidity and algorithmic trading for U.S.-Canadian cross-listed shares

Bart Frijns (), Ivan Indriawan and Tourani-Rad, Alireza

International Review of Financial Analysis, 2018, vol. 56, issue C, 136-152

Abstract: We analyze price discovery dynamics for Canadian companies cross-listed on the NYSE from January 2004 to August 2017. We employ a structural vector autoregression to assess the interactions between price discovery, liquidity and algorithmic trading activity. We observe that over time, the U.S. market is gaining dominance in terms of price discovery. Improvements in liquidity increase a market's contribution to price discovery, and vice versa. We find that algorithmic trading activity is negatively related to price discovery, indicating negative externalities of high-frequency trading. These results are robust to fragmentation in the Canadian financial markets as well as regulatory changes in both the U.S. and Canada.

Keywords: Market microstructure; Price discovery; Cross-listings (search for similar items in EconPapers)
JEL-codes: C32 G15 (search for similar items in EconPapers)
Date: 2018
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