What determines the location of equity trading? Evidence from stocks cross-listed in various markets

We analyse the distribution of foreign trading volume of European stocks cross-listed on various stock exchanges and examine the factors that affect the distribution. We focus on the role of two sets of determinants: the stock exchange characteristics and the stock-specific factors. We find that a stock exchange’s ability to attract order flow of foreign equity is positively associated with its organizational efficiency, market liquidity, the regulations pertinent to the quality of investor protection and insider trading. Regulated stock exchanges are found to be more successful in attracting order flow of foreign stocks than non-regulated markets, such as OTC and alternative markets and trading platforms. Among the stock-level factors, the share of trading on a foreign exchange is higher for companies that are smaller, riskier and have low return correlation with the host market returns. It is also evident that the share of foreign trading volume of stock is higher when the currencies of host and home markets are the same and the share increases with the duration of a listing