Price Discovery for Cross-Listed Stocks

Jourrnal Of Investment Management, Vol. 1, No. 4, Fourth Quarter 2003

Posted: 1 Apr 2004

See all articles by Sanjiv Sabherwal

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate

Cheol S. Eun

Georgia Institute of Technology - Finance Area

Abstract

We investigate price discovery for internationally traded stocks. For a sample of Canadian stocks cross-listed on the Toronto Stock Exchange (TSE) and the NYSE, we find that both markets contribute to price discovery. The U.S. share of price discovery ranges from 0.4 percent to 98.1 percent, and averages 36 percent. The U.S. contribution is directly related to the U.S. share of trading and to the ratio of proportions of informative trades on the NYSE and the TSE, and inversely related to the ratio of bid-ask spreads on the NYSE and the TSE. In response to a positive shock to the C$/US$ exchange rate, stock prices on the TSE rise, whereas those on the NYSE decline. The NYSE bears a much greater burden of adjusting to the exchange rate changes.

Keywords: Price discovery, Cross-listed stocks

JEL Classification: G00

Suggested Citation

Sabherwal, Sanjiv and Eun, Cheol S., Price Discovery for Cross-Listed Stocks. Jourrnal Of Investment Management, Vol. 1, No. 4, Fourth Quarter 2003, Available at SSRN: https://ssrn.com/abstract=497292

Sanjiv Sabherwal (Contact Author)

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States
817-272-3705 (Phone)
817-272-2252 (Fax)

Cheol S. Eun

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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