Lost in Translation: Which Stocks Bear the Burden to Adjust to Exchange Rates?

Lockwood, Jimmy; Lockwood, Larry J.; Lau, Sing

doi:10.2139/ssrn.2683634

Cited by 1 publication

(4 citation statements)

References 26 publications

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“…To help explain the cross‐section of price discovery across stocks, we include the exchange rate variable introduced by Lockwood, Lockwood, and Lau (). The measure, TRP (translation risk percentage), is derived from a three‐system vector error correction model using one‐minute data:

T R P_{i} = \frac{{true \overset{ψ}{true}}_{i, H O M E, E}}{{true \overset{ψ}{true}}_{i, H O M E, E} + true| {true \overset{ψ}{true}}_{i, N Y S E, E} true|},

where for stock i ,

{true \hat{ψ}}_{i, N Y S E, E}

true({\overset{ψ}{true}}_{i, H O M E, E} true)

is the impulse response function measuring the long‐run responses of prices on the NYSE (home exchange) to a shock in the home currency to U.S. dollar exchange rate ( E ).…”

Section: Data and Research Designmentioning

confidence: 99%

“…Related studies often focus on bid-ask spreads to reach conclusions about stock liquidity. Several authors point out weaknesses of this approach (e.g., Boehmer 2005;Corwin 1999;Lee, Mucklow, and Ready 1993;Lockwood, Lockwood, and Lau 2016). Instead, our measure directly addresses the price impact of trades.…”

Section: Trading Variablesmentioning

confidence: 99%

“…To help explain the cross-section of price discovery across stocks, we include the exchange rate variable introduced by Lockwood, Lockwood, and Lau (2016). The measure, TRP (translation risk percentage), is derived from a three-system vector error correction model using one-minute data:…”

Section: Trading Variablesmentioning

confidence: 99%

“…There also is no reason to expect the burden to restore price parity to be common across all stocks listed on the same exchange. Consequently, we estimate TRP separately for each stock (see also Lockwood, Lockwood, and Lau ). We expect the NYSE information share to be positively related to TRP ; that is, the NYSE information share is higher if the home market bears a higher burden to adjust to exchange rates.…”

Section: Data and Research Designmentioning

confidence: 99%

See 3 more Smart Citations

Price Discovery of Internationally Cross‐listed Stocks During the 2008 Financial Crisis

Lockwood

Lau

2018

J of Financial Research

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Studies of cross‐listings show home markets dominate price discovery and point to informational advantages of local investors. However, we show price discovery gravitates to markets with better order execution quality and find home markets do not dominate price discovery. Instead, price discovery is more evenly split, especially for emerging markets. Order execution quality determines the dominant market as price discovery shifts 22% when order execution advantages reverse between home and foreign markets. Thus, markets with poor execution quality act more as satellite markets, adjust to more liquid markets, and play a diminished role in the pricing of cross‐listed stocks.

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T R P_{i} = \frac{{true \overset{ψ}{true}}_{i, H O M E, E}}{{true \overset{ψ}{true}}_{i, H O M E, E} + true| {true \overset{ψ}{true}}_{i, N Y S E, E} true|},

where for stock i ,

{true \hat{ψ}}_{i, N Y S E, E}

true({\overset{ψ}{true}}_{i, H O M E, E} true)

is the impulse response function measuring the long‐run responses of prices on the NYSE (home exchange) to a shock in the home currency to U.S. dollar exchange rate ( E ).…”