The impact of cross‐listings on the UK and the German stock markets

Abstract

Purpose -The purpose of this paper is to examine volatility transmissions between portfolios of cross-listed equities and exchange rate differences and also the volatility persistence for home, foreign equities, and exchange rate differences in the UK and German markets. Design/methodology/approach -A primary focus of this paper is to see if there is an impact first on the volatility persistence for foreign equities that are listed in the UK and German markets, second on the respective home portfolios of cross-listed equities, and third on the exchange rate differences. In addition, whether there are any bilateral spillovers between the following equity portfolios: foreign cross-listed equities, home cross-listed equities, and also local or global exchange rate differences are investigated. Findings -The paper finds that the volatility persistence is more prominent than error persistence from cross-listed equities, foreign or home, and the exchange rate differences. Furthermore, the transmission mechanism indicates a bilateral integration process in some of the cases that were examined. Based on these results, it is concluded that in the UK market the foreign cross-listings affect less the domestic equities compared to the German market. Originality/value -This paper examines the interdependence of portfolios of home and foreign equities for cross-listings that belong to the same stock exchange with two exchange rates, a local and a global one in order to provide more evidence in this area of literature.

Asynchronous ADRs: overnight vs intraday returns and trading strategies

“…When it comes to cross-listed equities, studies on the degree of market integration have been done previously. For instance, Koulakiotis et al (2010) examine the impact of cross-listings and exchange rate differences on the UK and German markets integration in terms of volatility transmissions and persistence. Madan (2012) studies the correlations between the local stock and the foreign currency price of the US dollar through the prices of ADR options.…”