Abstract
AbstractWe develop a model to assess the quote dynamics of stocks listed in multiple markets. This model allows us to explain the price formation mechanism and the degree of information spillover. We show that this model can be transformed to assess the dynamics of the spreads, the efficient price, and the market's relative premium for cross‐listed stocks. Applying our model to a sample of 64 Canadian companies listed in the United States and Canada, we document strong intermarket competition among liquidity providers; prices mainly adjust to trades in their respective market, suggesting some degree of informational frictions; and U.S. trades have a greater price impact than Canadian trades. We further find that the U.S. market is informationally dominant due to its more competitive quote‐setting behavior and larger incorporation of informational shocks.
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