Ripples Through Markets: Inter-Market Impacts Generated by Large Trades

Ellul, Andrew

doi:10.2139/ssrn.675321

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Ripples Through Markets: Inter-Market Impacts Generated by Large Trades

Indiana University Working Paper

33 Pages Posted: 2 Mar 2005

See all articles by Andrew Ellul

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Date Written: July 5, 2004

Abstract

This paper investigates the impacts of very large trades for cross-listed companies where parallel markets suffer from information frictions. We use a sample of large trades executed on London Stock Exchange's SEAQ-I market for European cross-quoted firms and investigate their impact on home market prices when transparency is opaque. We find that (a) London large trades produce price impacts in home markets even though no timely information is published, (b) market makers appear to pre- and postposition their inventories by splitting orders across markets, and (c) the price discovery process across markets changes significantly around large trades with the foreign market making a significantly bigger contribution to price discovery, even though information opaqueness exists.

Keywords: Cross-listed companies, information across markets, transparency, large trades

JEL Classification: G14, G15, G18

Suggested Citation: Suggested Citation

Ellul, Andrew, Ripples Through Markets: Inter-Market Impacts Generated by Large Trades (July 5, 2004). Indiana University Working Paper, Available at SSRN: https://ssrn.com/abstract=675321 or http://dx.doi.org/10.2139/ssrn.675321