The Economic Consequences of the U.S. Supreme Court’s Morrison v. National Australia Bank Decision for Foreign Stocks Cross-Listed in U.S. Markets

41 Pages Posted: 21 Nov 2011 Last revised: 17 Sep 2012

Louis Gagnon

Smith School of Business, Queen's University

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

Date Written: September 17, 2012

Abstract

We show that the U.S. Supreme Court’s ruling in the case of Morrison v. National Australia Bank in June of 2010 was associated with a statistically significant 37 basis point increase on the day in the price deviation between the U.S. cross-listed shares trading in U.S. markets and the underlying home-market shares. The Court unexpectedly ruled that the main fraud-related provisions of U.S. securities laws can apply only to transactions in foreign securities that take place in the U.S. Across our sample of almost 1,000 foreign firms from 42 different countries cross-listed on the major U.S. exchanges as well as those trading on over-the-counter (OTC) markets, the price deviations between the cross-listed and underlying home-market shares widened more dramatically for those companies with a lower presence in the U.S. as measured by the fraction of global trading that takes place in U.S. markets. The market’s revaluation of the cross-listed shares around the decision is consistent with the idea that investors care about the extent to which U.S. securities laws apply, an important driver of the bonding role that U.S. markets play.

Keywords: Multi-market trading, Cross-listed stocks, Regulatory change

JEL Classification: F30, G32, G15

Suggested Citation

Gagnon, Louis and Karolyi, George Andrew, The Economic Consequences of the U.S. Supreme Court’s Morrison v. National Australia Bank Decision for Foreign Stocks Cross-Listed in U.S. Markets (September 17, 2012). Johnson School Research Paper Series No. 50-2011. Available at SSRN: https://ssrn.com/abstract=1961178 or http://dx.doi.org/10.2139/ssrn.1961178

Louis Joseph Gagnon

Smith School of Business, Queen's University ( email )

Kingston, Ontario K7L 3N6
Canada
613-533-6707 (Phone)
613-533-2321 (Fax)

George Andrew Karolyi (Contact Author)

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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