 Splitting orders in overlapping markets: A study of cross-listed stocksJournal of Financial Intermediation, 2008, vol. 17, issue 2, 145-174 Abstract: Fragmented trading is widespread. Chowdhry and Nanda [Chowdhry, B., Nanda, V., 1991. Multimarket trading and market liquidity. Rev. Finan. Stud. 4, 483-511] show that some traders benefit by splitting orders across markets at the cost of small liquidity traders who, for exogenous reasons, only trade locally. We extend their model to analyze British and Dutch stocks with ADRs, which trade on both sides of the Atlantic for one or two hours each day. We predict that, in the presence of sufficient small liquidity trading, traders concentrate their trades in the overlapping period and split orders across markets. We document considerable empirical support. In the cross-section, we find order-splitting only for ADRs with most NYSE small liquidity trading. The evidence is (i) increased volatility, increased volume, and (weakly) higher liquidity supply in the overlap and (ii) positive correlation in order imbalance across markets. We further find that the common component in order imbalance has long-term price impact, which supports the notion that these order-splitters are informed traders. Keywords: Cross-listing; Trading; Fragmentation; High-frequency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:17:y:2008:i:2:p:145-174 Access Statistics for this article Journal of Financial Intermediation is currently edited by Elu von Thadden More articles in Journal of Financial Intermediation from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.