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How smooth is price discovery? Evidence from cross-listed stock trading

Title
How smooth is price discovery? Evidence from cross-listed stock trading
Authors
Chen H.Choi P.M.S.Hong Y.
Ewha Authors
최문섭
SCOPUS Author ID
최문섭scopus
Issue Date
2013
Journal Title
Journal of International Money and Finance
ISSN
0261-5606JCR Link
Citation
vol. 32, no. 1, pp. 668 - 699
Indexed
SSCI; SCOPUS scopus
Abstract
The adjustment to parity can be nonlinear for a cross-listed pair: Convergence may be quicker when the price deviation is sufficiently profitable. We propose a threshold error correction model (ECM) to gauge the market-respective information shares of Canadian listings traded on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). Since dynamics may alternatively be gradual, we further generalize the threshold framework to a smooth transition ECM. The empirical implications are as follows: First, the TSX and the NYSE appear to have integrated over time. Second, parity-convergence accelerates upon discounts on the cross-listings on the NYSE. Third, we find a larger feedback from the NYSE if the price gap exceeds the threshold (required arbitrage return). Fourth, informed traders tend to cluster on the NYSE upon discounts on the cross-listings. Fifth, information share and threshold are affected by the relative degree of private information, market friction and liquidity measures, firm-level characteristics, and aggregate risks. © 2012 Elsevier Ltd.
DOI
10.1016/j.jimonfin.2012.06.005
Appears in Collections:
경영대학 > 경영학전공 > Journal papers
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