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Price Discovery Across the Rhine

35 Pages Posted: 15 Aug 2001  

Bruno Biais

Centre for Economic Policy Research (CEPR)

Isabelle Martinez

University of Toulouse - Paul Sabatier; LGC

Date Written: July 2001

Abstract

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.

Keywords: International financial markets integration, information assymeteries, market microstructure

JEL Classification: F12, F21, F30

Suggested Citation

Biais, Bruno and Martinez, Isabelle, Price Discovery Across the Rhine (July 2001). AFA 2002 Atlanta Meetings; CEPR Disc. Paper No. 2878. Available at SSRN: https://ssrn.com/abstract=278164

Bruno Biais (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Isabelle Martinez

University of Toulouse - Paul Sabatier; LGC ( email )

118 Route de Narbonne
Toulouse cedex 9, F-31062
France

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