IMPLICATIONS OF EUROPEAN TRADING FOR THE NEW YORK STOCK EXCHANGE OPEN

Sunando Sengupta ()

The International Journal of Business and Finance Research, 2007, vol. 1, issue 2, 25-39

Abstract: We test the hypothesis that a market maker in New York faces a more competitive market for cross-listed European firms trading simultaneously in their home market during overlapping trading hours as compared to U.S. firms which trade mainly in New York. A sample of seventy two European firms is matched with a control group of U.S. firms, under the same industry and with same liquidity. We find that the mean percentage bid-ask spread for the European firms is significantly smaller than that of the U.S. firms for the opening thirty minutes of trading at the NYSE, even after controlling for liquidity and probability of informed trading. When we compare the percentage bid-ask spreads during the NYSE afternoon after the European markets have closed trading, we find no significant difference. This suggests that the U.S. and the European markets are integrated during the period of overlap and synergies exist between trading venues.

Date: 2007
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