6.3 Global equity markets and cross-listings

Global equity markets offer investors access to companies worldwide, with major exchanges like NYSE, NASDAQ, LSE, and TSE playing crucial roles. Each exchange has unique characteristics, listing requirements, and trading systems, catering to different types of companies and investors.

Cross-listing shares on multiple exchanges provides numerous benefits, including increased visibility, improved liquidity, and lower cost of capital. However, global equity investing also comes with risks such as political instability, currency fluctuations, and information asymmetry, which investors must carefully consider.

Global Equity Markets

Characteristics of global equity markets

Top images from around the web for Characteristics of global equity markets

• 

  Stock Markets | Boundless Finance View original

  Is this image relevant?

• 

  Chapter 2.2 – Introducing the Market System – Agribusiness Management 101 View original

  Is this image relevant?

• 

  Buying and Selling at Securities Exchanges | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Stock Markets | Boundless Finance View original

  Is this image relevant?

• 

  Chapter 2.2 – Introducing the Market System – Agribusiness Management 101 View original

  Is this image relevant?

1 of 3

Top images from around the web for Characteristics of global equity markets

• 

  Stock Markets | Boundless Finance View original

  Is this image relevant?

• 

  Chapter 2.2 – Introducing the Market System – Agribusiness Management 101 View original

  Is this image relevant?

• 

  Buying and Selling at Securities Exchanges | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Stock Markets | Boundless Finance View original

  Is this image relevant?

• 

  Chapter 2.2 – Introducing the Market System – Agribusiness Management 101 View original

  Is this image relevant?

1 of 3

• New York Stock Exchange (NYSE) operates as oldest and largest U.S. stock exchange featuring traditional auction-based trading floor and specialist system for market-making (Bell ringing ceremony)
  • Listing requirements prioritize company size and financial stability
• NASDAQ functions as electronic exchange without physical trading floor utilizing market maker system for liquidity provision
  • Known for hosting technology and growth companies (Apple, Microsoft)
  • Imposes lower listing requirements compared to NYSE
• London Stock Exchange (LSE) stands as Europe's largest stock exchange divided into Main Market for established companies and Alternative Investment Market (AIM) for smaller, growing firms
  • Employs SETS electronic trading system for efficient order matching
• Tokyo Stock Exchange (TSE) operates as Japan's largest stock exchange segmented into sections based on company size and liquidity
  • Utilizes Arrowhead trading platform for order matching
  • Heavily focuses on domestic Japanese companies (Toyota, Sony)

Cross-Listings and Global Equity Market Dynamics

Benefits of cross-listing shares

• Increased market visibility and investor base expands access to foreign investors and enhances media coverage and analyst following

• Improved liquidity extends trading hours across time zones and boosts trading volume

• Lower cost of capital achieved through broader investor base reducing risk premium and accessing more diverse funding sources

• Enhanced prestige and credibility signals financial strength and transparency through compliance with stringent listing requirements

• Strategic business benefits facilitate mergers and acquisitions and support international expansion (Alibaba listing on NYSE)

Impact of cross-listings

• Stock liquidity increases trading volume and depth while tightening bid-ask spreads and improving market efficiency

• Price discovery enhances information flow between markets creating arbitrage opportunities and lead-lag relationships between home and host markets

• Corporate governance improves through adoption of higher standards increased transparency and disclosure and bonding hypothesis (voluntary subjection to stricter regulations)

Risks in global equity investing

• Political risk encompasses regulatory changes affecting foreign investors expropriation or nationalization threats and capital controls and repatriation restrictions (Venezuela's nationalizations)

• Currency risk involves exchange rate fluctuations affecting returns transaction costs for currency conversion and hedging strategies and their implications

• Information asymmetry arises from language barriers in financial reporting differences in accounting standards (GAAP vs IFRS) and varying levels of market efficiency and transparency

• Market-specific risks include liquidity concerns in emerging markets trading hours and time zone differences and local market practices and customs

• Operational challenges involve custodial arrangements for foreign securities tax implications of international investing and compliance with multiple regulatory regimes