The Transmission of Pricing Information of Dually‐Listed Stocks

Abstract

We use the daily opening and closing prices of eighteen dually-listed Hong Kong companies to investigate the transfer of pricing information between the Stock Exchange of Hong Kong (SEHK) and the London Stock Exchange (LSE). Evidence shows that (1) SEHK overnight returns respond significantly to change in LSE intraday returns, but the transmission process is not completed at the opening of the SEHK; (2) LSE overnight returns respond significantly to changes in SEHK intraday returns, but the transmission process is not completed at the opening of the LSE, either; (3) the impact is stronger moving from the LSE to the SEHK. This evidence indicates that information transfer runs in both directions and that most of the transmitted information continues to be processed throughout the following trading day (JEL G15). Copyright Blackwell Publishers Ltd 1999.

Where does price discovery occur for stocks traded in multiple markets? Evidence from Hong Kong and London

“…Bae et al (1999) show that the transmission of information runs into both directions, though the impact is much stronger moving from the LSE to the HKEx. It is worth noting that their methodology was only designed to capture the transfer of systematic information between Hong Kong and London.…”

“…This is demonstrated by evidence indicating that the movement of the U.S. market affects other markets, but not vice versa. Hence, by focusing on the transmission of the systematic information, it is not surprising that Bae et al (1999) find that the London market has a much stronger impact on Hong Kong stock trading than the Hong Kong market has on London stock trading. Recently, Wang et al (2002) examine the spillovers between the Hong Kong market and the London market using GJReGARCH (1, 1) models.…”

“…Given the conflicting findings compiled by Bae et al (1999) and Wang et al (2002), the question of where the price discovery occurs has yet to be resolved. Especially, the role of the London market in price discovery warrants further analyses.…”

It Takes Two to Tango: International Transfer of Pricing Information between Cross-Listed Securities

“…Each receipt denotes a specific number of shares to which it can be con-verted according to a specified conversion rate. 4 Since an ADR and the underlying share represent the same value, a natural question is whether they share the same price generating process, and, in particular, it becomes relevant to understand the features of the information transmission mechanism of such a share, traded in a "global" market.…”

“…Based on their findings, the New York stock exchange emerges as the dominant market for US crosslisted firms. In a more recent study Eun and Sabherwal (2003) examine the contribution of cross-listings for the price discovery for a sample of Canadian firms whose stocks 4 For a comprehensive survey of ADRs see Karolyi (1998).…”