The seemingly anomalous price behavior of Royal Dutch/Shell and Unilever N.V./PLC

Rosenthal, Leonard

doi:10.1016/0304-405x(90)90015-r

Cited by 146 publications

(66 citation statements)

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“…12, No. 12;2016 co-movement is higher for US-Dutch pairs than US-UK pairs, which supports Suh (2003)'s findings that ADRs from emerging countries with fragmented markets and foreign ownership restrictions tend to trade at a higher premium to their underlying shares than those from developed countries.…”

Section: Cross-listed Stockssupporting

confidence: 64%

“…One of the first papers working on this topic was Rosenthal and Young (1990). They examine the pricing of shares of two Anglo-Dutch DLCs: The Royal Dutch Shell group and Unilever group for the period from September 1979 to December 1986.…”

Section: Literature Reviewmentioning

confidence: 99%

“…12, No. 12;2016 This paper is organised in five sections as follows: the first two sections provide a brief introduction and an overview of the literature on mispricing behaviour and location of trade effect; the third section describes the research methodology and selected data; section four discusses the research findings; and section five presents the conclusions.…”

Section: Introductionmentioning

confidence: 99%

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The Influence of Trading Locations on Equity Returns

Vo¹

2016

ASS

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This paper evaluates the impact of trading locations on equity returns by examining the stock price behaviour of three Anglo-Dutch dual-listed companies which result from mergers where two corporations agree to function as a single operating business, but maintain separate identities. The shares of these stocks are traded not only in their home market but also on several US stock exchanges in the form of American Depository Receipts. Regressing the return differentials on these dual-listed and cross-listed stocks on the relative market index returns and currency changes provides evidence of an apparent violation of the Law of One Price. The regression results show that the return on each part of dual-listed companies is highly correlated with the market on which it is most intensively traded. Similarly, returns on cross-listed stocks have considerably higher co-movement with US market indices and considerably lower co-movement with home-market indices than their home-market counterparts. Market risk premium is not a significant explanatory variable of the location of trade effect.

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Section: Cross-listed Stockssupporting

confidence: 64%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Influence of Trading Locations on Equity Returns

Vo¹

2016

ASS

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“…Siamese Twins, as discussed in Rosenthal and Young (1990) and Froot and Dabora (1999), are firms that for historical reasons have two types of shares with fixed claims on the cash flows and assets of the firm. An example is Royal Dutch/Shell, which has both Royal Dutch shares (traded in Amsterdam) and Shell (traded in London).…”

Section: Twin Shares: Can the Stock Market Multiply By 15?mentioning

confidence: 99%

Anomalies: The Law of One Price in Financial Markets

Lamont

Thaler

2003

Journal of Economic Perspectives

198

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The Law of One price states that identical goods (or securities) should sell for identical prices. In financial markets the law of one price is thought to hold almost exactly, and is the basis for much of financial economic theory. We present evidence on several examples of violations of this law, including closed-end country funds, twin shares, dual class shares, and corporate spinoffs. We analyze the causes of these violations, and show they all stem from some limits on the extent to which rational arbitrageurs can intervene.

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“…Many of the papers in this literature investigate the differences in pricing between the ADR and the underlying share, and thus indirectly seek to explain the premium in relation to macroeconomic factors and the degree of segmentation/integration between the home and ADR market. See, for example, Rosenthal and Young (1990), Kato, Lin, and Schallheim (1991), Wahab, Lashgari, and Cohn (1992), Park and Tavokkol (1994), Miller and Morey (1996), Chakravarty, Sarkar, and Wu (1998), Foerster and Karolyi (1999), Dabora and Froot (1999), Grammig, Melvin, andSchlag (2001, 2005), Eun and Sabherwal (2002), Karolyi and Li (2003), De Jong, Rosenthal, and van Dijk (2004), Doidge, Karolyi, and Stulz (2004), Gagnon and Karolyi (2003), Suh (2003), Menkveld, Koopman, and Lucas (2003), Karolyi (2004), Bailey, Karolyi, and Salva (2005), Blouin, Hail, and Yetman (2005).…”

mentioning

confidence: 99%

A tale of two prices: Liquidity and asset prices in multiple markets

Chan

Hong

Subrahmanyam

2008

Journal of Banking & Finance

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This paper investigates the liquidity effect in asset pricing by studying the liquiditypremium relationship of an American Depositary Receipt (ADR) and its underlying share.Using the Amihud (2002) measure, the turnover ratio and trading infrequency as proxies for liquidity, we show that a higher ADR premium is associated with higher ADR liquidity and lower home share liquidity, in terms of changes in these variables. We find that the liquidity effects remain strong after we control for firm size and a number of country characteristics, such as the expected change in the foreign exchange rate, the stock market performance, as well as several variables measuring the openness and transparency of the home market.JEL Classification: G10, G12, G15

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The seemingly anomalous price behavior of Royal Dutch/Shell and Unilever N.V./PLC

Cited by 146 publications

References 1 publication

The Influence of Trading Locations on Equity Returns

The Influence of Trading Locations on Equity Returns

Anomalies: The Law of One Price in Financial Markets

A tale of two prices: Liquidity and asset prices in multiple markets

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