Policymakers in emerging markets are increasingly concerned about the consequences for the domestic equity market when companies list stock abroad. We show that the effects of cross-listing depend on the quality of intermarket information linkages. We investigate these issues with unique data from the Mexican equity market. The impact of cross-listing is complex-balancing the costs of order f low migration against the benefits of increased intermarket competition. These effects are exacerbated by equity investment barriers that induce segmentation of the domestic equity market. Consequently, the benefits and costs of cross-listing are not evenly spread over all classes of shareholders. THERE HAS BEEN A DRAMATIC INCREASE in the trading of foreign stocks as investors recognize the need for international diversification and as foreign companies seek to broaden their shareholder base and raise capital. As a result, the number of American Depository Receipt~ADR! listings on U.S. exchanges has also risen sharply. Though corporations view cross-listings as value enhancing, the changes in liquidity and volatility, and the cost of trading associated with order f low migration following cross-listing may adversely affect the quality of the domestic equity market. Such changes are especially important for emerging markets facing new competition from wellestablished, highly liquid markets abroad, and are the source of increasing concern among policymakers. There is also considerable academic interest in this topic, especially because the effects of cross-listing may be related to the * Domowitz is from Northwestern University, Glen is with the International Finance Corporation, and Madhavan is at the University of Southern California. Financial support from the World Bank is gratefully acknowledged. Expert research assistance and several helpful suggestions were provided by Mark Coppejans. We thank

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Actual investment performance reflects the underlying strategy of the portfolio manager and the execution costs incurred in realizing those objectives. Execution costs, especially in illiquid markets, can dramatically reduce the notional return to an investment strategy. This paper examines the interactions between cost, liquidity and volatility, and analyses their determinants using panel data for 42 countries from September 1996 to December 1998. We document wide variation in trading costs across countries; emerging markets, in particular, have significantly higher trading costs even after correcting for factors such as market capitalization Goldman Sachs Asset Management provided many useful comments. Any errors are entirely our own. and volatility. We analyse the inter-relationships between turnover, equity trading costs and volatility, and investigate the impact of these variables on equity returns. In particular, we show that increased volatility, acting through costs, reduces a portfolio's expected return. However, higher volatility reduces turnover also, mitigating the actual impact of higher costs on returns. Further, turnover is inversely related to trading costs, providing a possible explanation for the increase in turnover in recent years. The results demonstrate that the composition of global efficient portfolios can change dramatically when cost and turnover are taken into account.