This paper examines the factors influencing the liquidity allocation between local and foreign dual listings. Based on a comprehensive data set covering the period between 2001 and 2011, empirical results suggest that the fraction of trading in the foreign listing decreases with a higher degree of stock market integration measured as the stock price correlation with the world market. Furthermore, the analysis of individual cross‐listings reveals that both an improvement of a country's state of economic development and a better regulatory environment significantly affect the allocation of trading. While an improvement in economic development increases both local and foreign liquidity, a strengthening of regulatory standards leads to a decrease in trading volumes at foreign exchanges. Finally, the liquidity share in the foreign listing is found to decrease over time, a trend that turns out to be driven by developing rather than by developed markets. Copyright © 2016 John Wiley & Sons, Ltd.