information,trading volume, and international stock return comovements:evidence from cross listed stocks

Louis Gagnon and G.Andrew Karolyi

Journal of Financial and Quantitative Analysis

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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.