THE CHOICE OF TRADING VENUE AND RELATIVE PRICE IMPACT OF INSTITUTIONAL TRADING: ADRs VERSUS THE UNDERLYING SECURITIES IN THEIR LOCAL MARKETS

We address two important themes associated with institutions’ trading in foreign markets: (1) the choice of trading venues (between a company's listing in its home market and that in the United States as an American Depositary Receipt [ADR]) and (2) the comparison of trading costs across the two venues. We identify institutional trading in both venues using proprietary institutional trading data. Overall, our research underscores the intuition that the choice of institutional trading in a stock's local market or as an ADR is a complex process that embodies variables that measure the relative adverse selection and liquidity at order, stock, and country levels. Institutions route a higher percentage of trades to more liquid markets, and these trades are associated with higher cumulative abnormal returns. We also find that institutional trading costs are generally lower for trading cross‐listed stocks on home exchanges even after controlling for selection bias.     

FURTHER EVIDENCE ON INSIDER TRADING AND THE MERITS OF SECURITIES CLASS ACTIONS

To provide further evidence on the merits of securities class actions, we examine insider transactions immediately before and during the class period, using a larger and newer data set. We show that insiders reduce their stock sales by an abnormal amount immediately before the class period. Alternative measures of insider transactions and analysis of data before the enactment of the Private Securities Litigation Reform Act of 1995 provide consistent results. These new findings indicate that class actions, on average, have merit. Our data also reestablish a previous empirical result that there is no abnormal selling during the class period.