Informed traders of cross-listed shares trade more in the domestic market around earnings releases

Informed traders of cross-listed shares trade more in the domestic market around earnings releases This paper examines informed trading and price discovery for Canadian shares cross-listed on the Toronto Stock Exchange and the main U.S. exchanges. The domestic Canadian market can absorb higher demand for liquidity but offers no trading cost advantage. During earnings non-announcement periods, the intra-market probability of informed trading (PI) is similar on both national markets, and both national markets contribute to price discovery. The magnitude and elapsed time over which trading volumes are increased when earnings are announced are higher in the domestic Canadian market. Around earnings announcements, PI decreases only on the U.S. market and the Canadian market contributes more to price discovery. To infer the fundamental values of the underlying cross-listed firms, market participants should monitor both markets, and intensify their monitoring of the Canadian market during earnings announcement periods. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Informed traders of cross-listed shares trade more in the domestic market around earnings releases

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0169-0
Publisher site
See Article on Publisher Site

Abstract

This paper examines informed trading and price discovery for Canadian shares cross-listed on the Toronto Stock Exchange and the main U.S. exchanges. The domestic Canadian market can absorb higher demand for liquidity but offers no trading cost advantage. During earnings non-announcement periods, the intra-market probability of informed trading (PI) is similar on both national markets, and both national markets contribute to price discovery. The magnitude and elapsed time over which trading volumes are increased when earnings are announced are higher in the domestic Canadian market. Around earnings announcements, PI decreases only on the U.S. market and the Canadian market contributes more to price discovery. To infer the fundamental values of the underlying cross-listed firms, market participants should monitor both markets, and intensify their monitoring of the Canadian market during earnings announcement periods.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 25, 2010

References

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