Splitting orders in overlapping markets: a study of cross-listed stocks

Albert Menkveld

No 3, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: Securities are increasingly traded through multiple venues. Chowdhry and Nanda (1991) show that sophisticated investors benefit by splitting orders across markets at the cast of local investors who only trade through one venue. If trading hours do not perfectly overlap, we can test for order-splitting by studying trading in the overlap vis­a-vis the non-overlap. We consider trading in NYSE- listed British and Dutch stocks an ideal experiment and tailor the model to this setting. We then extend it by allowing sophisticated investors to time their trades as in Admati and Pfleiderer (1988). We document increased volatility, increased volume, and unchanged market depth for the overlap, consistent with our predictions. Order-splitting is further evidenced through positive correlation in order imbalance across markets, controlling for arbitrage trades, synchronous information arrival, and microstructure effects

Keywords: Cross-listing; Trading; Fragmentation; High-frequency (search for similar items in EconPapers)
JEL-codes: G10 G15 G18 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (10)

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Journal Article: Splitting orders in overlapping markets: A study of cross-listed stocks (2008)
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