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Information, Trading Volume, and International Stock Return Comovements: Evidence from Cross-Listed Stocks

Published online by Cambridge University Press:  01 August 2009

Louis Gagnon  and
G. Andrew Karolyi
Louis Gagnon
Affiliation:
School of Business, Queen’s University, 143 Union St., Kingston, Ontario, K7L 3N6, Canada. lgagnon@business.queensu.ca
G. Andrew Karolyi
Affiliation:
Johnson Graduate School of Management, Cornell University, 348 Sage Hall, Ithaca, NY 14853. gak56@cornell.edu
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Abstract

We investigate the joint dynamics of returns and trading volume of 556 foreign stocks cross-listed on U.S. markets. Heterogeneous-agent trading models rationalize how trading volume reflects the quality of traders’ information signals and how it helps to disentangle whether returns are associated with portfolio-rebalancing trades or information-motivated trades. Based on these models, we hypothesize that returns in the home (U.S.) market on high-volume days are more likely to continue to spill over into the U.S. (home) market for those cross-listed stocks subject to the risk of greater informed trading. Our empirical evidence provides support for these predictions, which confirms the link between information, trading volume, and international stock return comovements that has eluded previous empirical investigations.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 4 , August 2009 , pp. 953 - 986
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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