The interactions between price discovery, liquidity and algorithmic trading for U.S.-Canadian cross-listed shares

Quote dynamics of cross‐listed stocks

“…These coefficients on a cross‐market error correction term are often given an interpretation in terms of price discovery, where a coefficient relatively close to zero indicates price leadership, while a relatively large coefficient (in absolute terms) indicates price‐following behavior 14 . This observation implies that price discovery is higher in the United States compared to Canada, consistent with Frijns, Indriawan, and Tourani‐Rad (2018).…”

Not everyone is a follower: The behaviour of interest rate and equity markets within major economies relative to the United States

“…In contrast with the United Kingdom, Japan and Germany, the price discovery channel for the equity markets indicates negative feedbacks from SP/TSX to S&P500 ( β 12 are both negative), a pattern that accentuates after the crisis. This can be explained relative to the other major economies by the fact that the Canadian equity market had faster access to current information through the multiple‐market listed shares and therefore it will have an advantage in the price discovery process (see Frijns, Indriawan, & Tourani‐Rad, 2018). In terms of indirect external channels, there are insignificant feedbacks in general, with only the Canadian equity market influencing the US money‐market ( β 32 = 0.0418 after the crisis).…”

Information flow and price discovery dynamics

“…The existing literature has examined price discovery for stocks in multiple markets both in one country (Hasbrouck 1995(Hasbrouck , 2003Harris, et al 2002) and in multiple countries (Werner and Kleidon 1996 Frijns et al 2015aFrijns et al , 2015bFrijns et al , 2018. Among the latter, some authors (Werner and Kleidon 1996;Hupperets and Menkveld 2002;Grammig et al 2005;Agarwal et al 2007;Menkveld 2008;Otsubo 2014) focus on nonsynchronous markets across countries while some others (Eun and Sabherwal 2003;Frijns et al 2015aFrijns et al , 2015bFrijns et al , 2018) examine synchronous markets across countries. 1 Most studies focusing on synchronous markets are based on the standard structural model, or its variant, in which there are one permanent shock and one transitory shock in two markets.…”

“…One central inquiry is on the questions of how integrated these markets are and which market, home or foreign, plays a more important role in price discovery. The overwhelming evidence suggests that price discovery should take place mostly in the home market (referred to as the efficient home market hypothesis) but, as these markets become more integrated with more barriers removed, both international and home markets would have a shared role (Solnik 1996; Bacidore and Sofianos 2002; Kryzanowski and Zhang 2002;Eun and Sabherwal 2003;Frijns et al 2015aFrijns et al , 2015bFrijns et al , 2018. Following Eun and Sabherwal (2003), 2 based on more recent intraday data of the 115 stocks cross-listed in the Canadian and U.S. markets, 3 we find that the ratio of the error correction coefficients would change as the frequencies of the intraday data are varied and, therefore, this ratio does not provide a consistent evidence across different intraday data frequencies.…”