Related Securities and Price Discovery: Evidence from NYSE-Listed Non-U.S. Stocks

52 Pages Posted: 19 Mar 2005 Last revised: 16 Apr 2010

See all articles by Piotr Korczak

Piotr Korczak

University of Bristol - Department of Finance and Accounting

Kate Phylaktis

City University London - Sir John Cass Business School

Date Written: April 16, 2010

Abstract

In this paper we analyze whether handling related securities improves a market maker’s information environment and helps to incorporate new information in stock prices. Our empirical tests are focused on New York Stock Exchange specialists and the U.S. share in price discovery of 64 British and French companies cross-listed on the NYSE. We define related securities as stocks from the same country, the same region, or other foreign stocks. We find strong evidence that a higher prominence of related stocks in the specialist portfolio is associated with a higher U.S. share in price discovery of our sample firms. We interpret our findings as evidence that concentrating market makers in similar stocks reduces information asymmetries and improves the information environment as market makers can extract information relevant to a stock from order flow to related securities. To support our argument, we show that the adverse selection component of the bid-ask spread is negatively related to the prominence of other foreign stocks in the specialist portfolio.

Keywords: NYSE specialists, cross-listing, related stocks, price discovery

JEL Classification: G14, G15

Suggested Citation

Korczak, Piotr and Phylaktis, Kate, Related Securities and Price Discovery: Evidence from NYSE-Listed Non-U.S. Stocks (April 16, 2010). EFA 2004 Maastricht Meetings Paper; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=567104 or http://dx.doi.org/10.2139/ssrn.567104

Piotr Korczak

University of Bristol - Department of Finance and Accounting ( email )

8 Woodland Road
Bristol BS8 1TN
United Kingdom
+44 117 394 1491 (Phone)

HOME PAGE: http://sites.google.com/view/piotrkorczak/home

Kate Phylaktis (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

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