Quote dynamics of dually-listed stocks
This study investigates the quote dynamics of stocks listed and traded in two international fullysynchronized markets. We develop a general model for quote dynamics of assets traded in dual markets to assess how quotes react to liquidity shocks and trade-related information. We further develop this model to extract the implied vector autoregression for the spreads, the e¢ cient price, and the relative premium between the two markets. Applying our model to a sample of 64 Canadian stocks listed both in the U.S. and Canada, we observe a strong evidence of cross-market errorcorrecting behavior of spreads on the bid and ask quotes, indicating some degree of intermarket competition between liquidity providers. We also Önd that trade-related information does not a§ect quotes across market directly, indicating that even though the prices in the two markets are cointegrated, the two markets are still informationally segmented. Microstructure fundamentals such as changes in midpoint (implied e¢ cient price) and the di§erence in midquotes (relative premium) are driven by liquidity and trade-related information from each of the two markets with the U.S contributing more than Canada.