文档介绍：Multimarket Trading and
Market Liquidity,
Bhagwan Chowdhry
University of California at Los Angeles
Vikram Nanda
University of Southern California
When a security trades at multiple locations simul-
taneously, an informed trader has several avenues
in which to exploit his private information. The
greater the proportion of liquidity trading by
"large” traders who can split their trades across
markets, the larger is the correlation between vol-
ume in different markets and the smaller is the
informativeness of prices. We show that one of the
markets emerges as the dominant location for
trading in that securiy. When informed traders
can use their information for more than one trad-
ing period the timely release of price information
by market makers at one location adversely affects
the profits informed traders expect to make sub-
sequently at other locations. Market makers, com-
peting to offer the lowest cost of trading at their
location, consequently deter informed trading by
voluntarily making the price information public
and by "cracking down” on insider trading.
An informed trader typically has more than one ave-
nue to exploit his private information. Many securities
are now cross-listed on exchanges in this country and
abroad. In addition, there are the so-called “third and
We thank David Hirshleifcr, Duane Seppi, Chester Spatt (the editor)), Avani-
dharsubmhtt,an anonymous referee ,the seminar participants at UCLA
and USC, and the program participants at the Western Finance Association
meetings in June 1990 at Santa Barbara for many ments and
suggestions. We are responsible for all remaining errors. Address reprint
requests to Bhagwan Chowdhry, Andcrson Graduate School of Management,
University of California at Los Angeles, los Angeles, CA 900241481.
The Review of Financial Studies 1991 Volume 4, number 3, pp. 483-511
1991 The Review of Financial Studies 0893-9454/91/$
fourth markets” in some stocks. Also, there often e