Price Discovery for Cross-Listed Stocks
Jourrnal Of Investment Management, Vol. 1, No. 4, Fourth Quarter 2003
Posted: 1 Apr 2004
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: Suggested Citation