Price Discovery Across the Rhine
Centre for Economic Policy Research (CEPR)
University of Toulouse - Paul Sabatier; LGC
AFA 2002 Atlanta Meetings; CEPR Disc. Paper No. 2878
This Paper studies the formation of opening prices for German and French stocks, simultaneously traded in Frankfurt and Paris. We analyse theoretically the case where investors and traders based in the same country as the firm have better information on its value than foreign traders. Our model implies that prices set on the domestic market should be informationally more efficient than prices set on the foreign market. For German stocks, our empirical results are consistent with theory. The informational efficiency of French stock prices is comparable in the two markets when the Frankfurt specialist can observe Paris preopening prices before opening the market.
Number of Pages in PDF File: 35
Keywords: International financial markets integration, information assymeteries, market microstructure
JEL Classification: F12, F21, F30working papers series
Date posted: August 15, 2001
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