Quote dynamics of dually-listed stocks
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The New Zealand Finance Colloquium
Abstract
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.
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Market Microstructure; Error-correction; Quote Dynamics, Cross-listings
Source
New Zealand Finance Colloquium held at Waikato University, Hamilton, NZ, 2015-02-18 to 2015-02-20
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NOTICE: this is the author’s version of a work that was accepted for publication. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in (see Citation). The original publication is available at (see Publisher's Version).