Interaction between price discovery, market liquidity and arbitrage activity: International evidence

Hayfa Gabsi, Houssam Bouzgarrou and Imen Ghadhab
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Hayfa Gabsi: Sousse University, Sousse, Tunisia
Houssam Bouzgarrou: Sousse University, Sousse, Tunisia
Imen Ghadhab: BESTMOD Laboratory, Sousse University, Sousse, Tunisia

International Journal of Financial Engineering (IJFE), 2024, vol. 11, issue 04, 1-38

Abstract: The aim of this study is to investigate the dynamic of price discovery for cross-listed stocks using high-frequency intraday data. We show that the local market leads price discovery process with a significant contribution of the foreign US market. Moreover, we find that arbitrage opportunities enhance market liquidity of cross-listed firms, and vice versa. A higher US market contribution to price discovery provides an increase in the local trading volume as well as in arbitrage opportunities frequency. This latter leads to greater local market contribution to price discovery confirming the information-based transactions in the domestic markets of US cross-listed firms.

Keywords: Cross-listing; price discovery process; market liquidity; arbitrage opportunities (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S2424786323500561

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