Abstract

In this paper, I examine the effects of the arrival of phony public information originating from the United-States on a sample of Canadian stocks listed both on the Toronto Stock Exchange (TSE) and on the major U.S. exchanges. I find that following the news announcement the stocks on both markets instantaneously experience a similar, highly correlated and significant log return surge along with a disruption in liquidity and a widening of the spread. Using control stocks for the sample of firms, my results suggest that the transmission mechanism is exacerbated by the presence of cross-listed stocks on the U.S. exchanges. Overall, this empirical work shows that cross-listed stocks can act as vectors for shocks, or at least strengthen the transmission mechanism of a shock from the home (foreign) market to the foreign (home) market. It also suggests that firms may have to take this potential pitfall into consideration when deciding to cross-list on a foreign exchange.