Multimarket Trading Of Cross-Listed Stocks: Liquidity, Investor Protection, And Excess Comovement In Returns

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My dissertation studies the influence of global institutional investors on liquidity distribution and excess comovement in returns for cross-listed stocks around the world. Furthermore, my dissertation investigates the impact of investor protection change on the liquidity distribution of cross-listed stocks. Chapter 1 studies how global institutional investors' selection of trading venues influences the liquidity distribution of cross-listed stocks on 19 target ("host") markets around the world. I document strong empirical evidence indicating that institutional investors gravitate towards markets that are more geographically, culturally, and economically proximate. However, institutional investor's familiarity preference abates in the selection of trading venues when the target exchange does not furnish detailed rules on trading practices. Chapter 2, co-authored with G. Andrew Karolyi, studies the impact of abrupt change in the U.S. investor protection laws on the location of stock trading for firms with U.S. cross-listings. The U.S. Supreme Court's ruling in the case of Morrison vs. National Australia Bank in June 2010 communicates that civil liability for securities fraud applies only to securities listed on U.S. markets and to security transactions taken place in the U.S. We investigate whether and how the trading volume distribution of U.S. cross-listed stocks changed around the U.S. Supreme Court's ruling on the Morrison case. Our results indicate that for U.S. cross-listed foreign firms, the U.S. market share of trading volume has increased after the Morrison decision. Chapter 3, co-authored with G. Andrew Karolyi, examines the influence of global institutional investors on excess comovement in stock returns using cross-listed stocks around the world. We find that the return differentials between the cross-listed and its ordinary home market share, though small, exhibit excess comovements relative to market index returns, the home and the target market returns. Furthermore, we examine whether institutional investors exert significant influence on excess comovement in the returns of long-short positions that consist of a crosslisted and its counterpart home market shares with respective market index returns. We find that institutional investors domiciled in home country intensify the excess comovement in long-short position returns with the home market returns.

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Karolyi, George Andrew

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Moulton, Pamela
Bailey, Warren B.

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Ph. D., Economics

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Doctor of Philosophy

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