Cross-listing, price discovery and the informativeness of the trading process

Pascual, Roberto; Pascual-Fuster, Bartolomé; Diranzo, Francisco José Climent

doi:10.1016/j.finmar.2006.01.002

Cited by 85 publications

(69 citation statements)

References 45 publications

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“…Hasbrouck is aimed to measure relative con tributions to price discovery. Pascual et al (2005) build on the model introduced in the next sections to incorporate the markets' trading processes into Hasbrouck's (1995) methodology. In this way, they are able to isolate, for each market, the trade related contribution from the trade unrelated contribution.…”

Section: Motivationmentioning

confidence: 99%

Asymmetries in bid and ask responses to innovations in the trading process

Escribano

Pascual

2005

Empirical Economics

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This paper proposes a new approach to jointly model the trading process and the revisions of market quotes. This method accommodates asymmetries in the dynamics of ask and bid quotes after trade related shocks. The empirical spec ification is a vector error correction (VEC) model for ask and bid quotes, with the spread as the co integrating vector, and with an endogenous trading process. This model extends the vector autoregressive (VAR) model introduced by Hasbrouck (Hasbrouck J (1991) Measuring the information content of stock trades. J Finance 46:179 207). We provide evidence against several symmetry assumptions, very familiar among microstructure models. We report asymmetric adjustments of ask and bid prices to trade related shocks, and asymmetric impacts of buyer and seller initiated trades. In general, buys are more informative than sells. The likelihood of symmetric quote responses increases with volatility. We show that our findings are robust across different model specifications, time frequencies, and trading periods. Moreover, we find similar asymmetries in markets with different microstructures.

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Section: Motivationmentioning

confidence: 99%

Asymmetries in bid and ask responses to innovations in the trading process

Escribano

Pascual

2005

Empirical Economics

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“…Gramming et al (2005) examine the price discovery process of three New York Stock Exchange (NYSE)-listed German stocks between the U.S. and German markets trade at overlapping times; price information originates in the home market. Pascual et al (2006) show that the Spanish market influences their ADR returns significantly. Su and Chong (2007) also show that the Hong Kong stock exchange dominate the NYSE in influencing the eight Chinese dually-listed stocks.…”

Section: Introductionmentioning

confidence: 93%

Where Does Price Discovery Occur? An Empirical Study of Taiwan’s ADRs and Their Underlying Foreign Stocks

Wang¹,

Wu²

2014

International Journal of Financial Research

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This study analyzes the process of price discovery for five Taiwanese American Depositary Receipts (ADRs) and their underlying foreign stocks. The empirical results reveal three previously undisclosed facts. First, ADRs provide price information during trading periods, and the closing prices of ADRs serve as guidelines for predicting the opening prices of the underlying Taiwan stocks. Second, the market index movements of ADR listing exchanges can explain the returns of ADRs and underlying stocks, but their influence cannot increase if the other index is used. Third, the explanatory power of the U.S. movements does not strengthen during the subprime mortgage financial crisis, despite large changes to the market.

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“…The latter seems a new result given that the literature has found the home market (Continues) more important to the price discovery process. For instance, Grammig et al (2005) concludes that the German market contributes more than the NYSE for three cross-listed German firms; Hupperets and Menkveld (2002) finds that the Dutch market is more important for most cross-listed shares they analyze; and Pascual, Pascual-Fuster, and Climent (2006) find that the NYSE has little importance for five Spanish firms. All firms in these studies present considerably lower trading intensity in the United States, when compared to the home markets.…”

Section: Valementioning

confidence: 99%

Price discovery in dual‐class shares across multiple markets

Fernandes¹,

Scherrer

2017

Journal of Futures Markets

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This paper proposes a new measure of price discovery that uses the spectral decomposition. The methodology is especially important in the context of large price systems, such as interest rate parities with spot and futures contracts or dual-class shares in multiple markets. We employ high frequency data to study price discovery in dual-class Brazilian stocks and their ADRs. We find that the foreign market is at least as informative as the home market and that shocks in the dual-class premium entail a permanent effect in normal times, but transitory in periods of financial distressFinancial markets have the important function of discovering the price of a given asset. The increasing availability of highfrequency data allows us to study how efficiently and timely each market reacts to news in a much more precise manner. There is a large number of companies being listed in more than one exchange mainly because cross-listing allows raising equity capital, at a lower cost and increasing liquidity. Besides, it may also improve minority shareholder protection (Stulz, 1999), increase firm value (Doidge, Karolyi, & Stulz, 2004), and lower private benefits of control (Doidge, 2004). There are 498 foreign companies from 46 different countries listed on NYSE as of June 30, 2016. As a result, geographical price discovery is of major interest for domestic stock exchanges and companies (see, for instance, Eun & Sabherwal, 2003). This paper extends the standard price discovery methodology to deal with high-dimension portfolios. Applications include interest rate parities using both spot and future contracts in interest rate and exchange rate markets as well as dual-class assets traded on multiple markets. We focus on the latter. The idea is to exploit every piece of information about the fundamental value of a firm by looking at the prices of both common and preferred shares across different trading platforms. As a by-product, by looking at the difference between prices of common and preferred shares, we may also shed some light on the behavior of the dual-class premium.The main technical difficulty is to contrive a unique price discovery measure that does not assume a priori which share class and/or market lead the impounding of new information. For the standard information share (IS) measure of price discovery (Hasbrouck, 1995), which gauges the fraction of the variance of the fundamental price innovation due to the variance of a given asset/market price innovation, one normally imposes a triangular structure from the most informative to the least informative market price in order to handle contemporaneous correlations. ISs will thus depend on the specific ordering in the price system.One solution is to consider the average IS across different orderings of market prices. This is a simple and effective solution if there are only a few market prices. However, as the number of assets/markets increase, one would have to average over thousands J Futures Markets. 2018;38:129-155.wileyonlinelibrary.com/journal/fut

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Cross-listing, price discovery and the informativeness of the trading process

Cited by 85 publications

References 45 publications

Asymmetries in bid and ask responses to innovations in the trading process

Asymmetries in bid and ask responses to innovations in the trading process

Where Does Price Discovery Occur? An Empirical Study of Taiwan’s ADRs and Their Underlying Foreign Stocks

Price discovery in dual‐class shares across multiple markets

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