The effect of cross-listing on trading volume: reducing segmentation versus signaling investor protection

We examine the relation between cross-listing on the U.S. and UK regulated and unregulated exchanges and trading volume for a sample of 500 foreign firms from 34 countries. We find that the increase in trading volume is a function of both reducing segmentation and signaling investor protection. In addition, we find that home market trading volume, firm size, firm returns, and analyst forecast accuracy are the major determinants of a firm's trading volume. We also show that U.S. 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.