Internationally cross-listed stock prices during overlapping trading hours: price discovery and exchange rate effects

Grammig, Joachim; Melvin, Michael; Schlag, Christian

doi:10.1016/j.jempfin.2003.10.004

Cited by 194 publications

(178 citation statements)

References 35 publications

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“…Thus, the traders on the TSX possess relatively more private information on Canadian cross-listed stocks than their counterparts on the NYSE. Looked at another way, this lends support to the consensus in the literature that home-market trades are more information-based than trades of their U.S. cross-listings (Eun and Sabherwal, 2003;Gagnon and Karolyi, 2009;Grammig et al, 2005). However, this may be partly due to the relatively relaxed prosecution of insider trading on the TSX (King and Segal, 2004).…”

Section: Informed Trading and Cross-border Price Discoverysupporting

confidence: 56%

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Chen¹,

Choi²

2012

Journal of Empirical Finance

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Section: Informed Trading and Cross-border Price Discoverysupporting

confidence: 56%

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Chen¹,

Choi²

2012

Journal of Empirical Finance

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“…To contemplate common and preferred shares in both domestic and foreign markets, this paper extends the three-variable model proposed by Grammig, Melvin, and Schlag (2005). The setup is such that every stock price in the system shares a common component given by the fundamental value of the firm (i.e., the present value of the firm's expected cash flow).…”

Section: Computing Information Sharesmentioning

confidence: 99%

“…Because there are multiple common factors, Ψ 1 ð Þ does not have a common row; see Equation 4 in Section 2.1. Accordingly, we make use of the entire matrix Ψ 1 ð Þ as in Grammig et al (2005) to extract the K Â K ð Þmatrix of ISs. Element i; j ð Þ of the IS matrix corresponds to the relative contribution of market j to the total variance of the innovation in market i, where i ¼ 1; 2; .…”

Section: Which Share Class Leads and In Which Market?mentioning

confidence: 99%

“…The latter seems a new result given that the literature has found the home market (Continues) more important to the price discovery process. For instance, Grammig et al (2005) concludes that the German market contributes more than the NYSE for three cross-listed German firms; Hupperets and Menkveld (2002) finds that the Dutch market is more important for most cross-listed shares they analyze; and Pascual, Pascual-Fuster, and Climent (2006) find that the NYSE has little importance for five Spanish firms. All firms in these studies present considerably lower trading intensity in the United States, when compared to the home markets.…”

Section: Valementioning

confidence: 99%

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Price discovery in dual‐class shares across multiple markets

Fernandes¹,

Scherrer

2017

Journal of Futures Markets

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This paper proposes a new measure of price discovery that uses the spectral decomposition. The methodology is especially important in the context of large price systems, such as interest rate parities with spot and futures contracts or dual-class shares in multiple markets. We employ high frequency data to study price discovery in dual-class Brazilian stocks and their ADRs. We find that the foreign market is at least as informative as the home market and that shocks in the dual-class premium entail a permanent effect in normal times, but transitory in periods of financial distressFinancial markets have the important function of discovering the price of a given asset. The increasing availability of highfrequency data allows us to study how efficiently and timely each market reacts to news in a much more precise manner. There is a large number of companies being listed in more than one exchange mainly because cross-listing allows raising equity capital, at a lower cost and increasing liquidity. Besides, it may also improve minority shareholder protection (Stulz, 1999), increase firm value (Doidge, Karolyi, & Stulz, 2004), and lower private benefits of control (Doidge, 2004). There are 498 foreign companies from 46 different countries listed on NYSE as of June 30, 2016. As a result, geographical price discovery is of major interest for domestic stock exchanges and companies (see, for instance, Eun & Sabherwal, 2003). This paper extends the standard price discovery methodology to deal with high-dimension portfolios. Applications include interest rate parities using both spot and future contracts in interest rate and exchange rate markets as well as dual-class assets traded on multiple markets. We focus on the latter. The idea is to exploit every piece of information about the fundamental value of a firm by looking at the prices of both common and preferred shares across different trading platforms. As a by-product, by looking at the difference between prices of common and preferred shares, we may also shed some light on the behavior of the dual-class premium.The main technical difficulty is to contrive a unique price discovery measure that does not assume a priori which share class and/or market lead the impounding of new information. For the standard information share (IS) measure of price discovery (Hasbrouck, 1995), which gauges the fraction of the variance of the fundamental price innovation due to the variance of a given asset/market price innovation, one normally imposes a triangular structure from the most informative to the least informative market price in order to handle contemporaneous correlations. ISs will thus depend on the specific ordering in the price system.One solution is to consider the average IS across different orderings of market prices. This is a simple and effective solution if there are only a few market prices. However, as the number of assets/markets increase, one would have to average over thousands J Futures Markets. 2018;38:129-155.wileyonlinelibrary.com/journal/fut

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“…Informed traders update their assumption of future payoffs based on private signals: An earnings surprise is 1) Exchange-rate market friction is considered neither in our static nor dynamic models unlike Grammig et al (2005) due to the stationarity of the U.S.-Canada exchange rate (Issa et al, 2006). …”

Section: One-market Tradersmentioning

confidence: 99%

Synchronous Price Discovery of Cross-Listings

Chen¹,

Choi²

2014

Management Science and Financial Engineering

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Extending from Grossman and Stiglitz (1980), we provide an asset pricing model of a synchronously traded crosslisted pair under information asymmetry. Following Garbade and Silber (1983), the model further embraces multimarket price discovery in a dynamic framework. The implications are as follows: The price sensitivity of holdings is higher for informed traders than for uninformed traders; the largest cross-border price spread occurs in the absence of arbitrageurs; price discovery is more likely in markets with a larger population of informed traders; and parity convergence accelerates with a higher price elasticity of demand of arbitrageurs.

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Internationally cross-listed stock prices during overlapping trading hours: price discovery and exchange rate effects

Cited by 194 publications

References 35 publications

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Price discovery in dual‐class shares across multiple markets

Synchronous Price Discovery of Cross-Listings

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