Hi everyone,
there are plenty of securities that are listed on a variety of different exchanges, even within and across various geographical regions. Generally speaking, each exchange will have its own “order book”, and therefore its own bid/ask spread that will determine the quote offered on that exchange.
The theory now says that any difference that might arise between various exchanges (Let's take Xetra Germany and Euronext Paris, for example – similar geographic locations, same currency, but different exchanges with mostly the same listings.) will be taken advantage of by arbitrage traders, typically some big HFT firms / liquidity providers.
That's the theory – but do we have any data about what the effects are in practice? How fast can I assume that prices will stabilize across two select exchanges? And can I make any assumptions on the potential spread that can arise as well? For example, let's say a large trade is being placed on one specific exchange. How long will it take for the impacted price of that trade to spread towards another exchange?
Out of pure curiosity, I've looked up a random Vanguard ETF on Xetra and on Euronext:
https://www.boerse-frankfurt.de/etf/vanguard-ftse-developed-europe-ucits-etf
https://live.euronext.com/en/product/etfs/IE00B945VV12-XAMS
This week, they closed with a difference of nearly 2cents, which actually seems way bigger than I would have expected! Is this just an effect of those quotes being dependent on the last trade(s) before closing, and can I expect the difference to be far smaller & eliminated much quicker during the day? Any experiences with this?
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