Multimarket Trading and Liquidity: Theory and Evidence





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    • Baruch and Lemmon are at the David Eccles School of Business, University of Utah. Karolyi is at the Fisher College of Business, Ohio State University. A portion of this work was completed while Baruch was visiting the Bendheim Center for Finance at Princeton University. We thank an anonymous referee and the editor as well as seminar participants at the Università di Bologna, INSEAD, University of Utah, Georgia State University, London Business School, Louisiana State University, New York Stock Exchange, University of North Carolina at Chapel Hill, Texas A&M University, and the NYSE Conference on the Future of Global Equity Trading for helpful comments. We are especially grateful for comments and discussions with Paul Bennett, Hank Bessembinder, Ekkehart Boehmer, Robert Hardy (Fleet Specialists), Christian Leuz, Ailsa Roell, Gideon Saar, René Stulz, Glenn Surnamer (VDM Specialists), and Ingrid Werner. Roger Loh provided exceptional research assistance for which we are also grateful.


We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross-listed stocks. The model predicts that the trading volume of a cross-listed stock is proportionally higher on the exchange in which the cross-listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non-U.S. stocks cross-listed on major U.S. exchanges.