The Effect of Cross-Listing on Trading Volume : Reducing Segmentation Versus Signaling Investor Protection

This paper investigates the relationship between cross-listing on the US and UK regulated and unregulated exchanges and trading volume, for a sample of 500 foreign firms from 34 countries. Evidence shows that trading volume increase is a function of both reducing segmentation and signaling investor protection. In addition, we find that home market trading volume, firm's size, firm's return, and analysts' forecast accuracy are the major determinants of firm's trading volume. Moreover, the findings show that US and UK investors trade foreign securities that originate from low investor protection countries more than they trade those from high investor protection countries, which is consistent with the bonding hypothesis