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1 – 10 of 953Financial markets’ integration and technological advances in equity trading may have reduced the potential benefits from listing a firm's shares on a foreign exchange…
Abstract
Purpose
Financial markets’ integration and technological advances in equity trading may have reduced the potential benefits from listing a firm's shares on a foreign exchange. Nevertheless, a significant number of firms continue to cross‐list every year. This paper examines the recent cross‐listing trends and reviews the literature on motives to cross‐list.
Design/methodology/approach
The literature review includes a summary of theoretical studies grouped into cross‐listing theories including market segmentation, liquidity, investor recognition, information disclosure, legal bonding, proximity preference and business strategy theories, and also includes a discussion of testable implications and empirical evidence for each of the above mentioned cross‐listing theories.
Findings
An extensive cross‐listing literature offers a number of theories on the motives to cross‐list that in most cases complement each other by encompassing different aspects of the complex cross‐listing behavior. Nevertheless, continuous market developments, such as significant regulatory and technological changes in the ways capital markets operate, raise new questions on why firms cross‐list and call for further research to continue.
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Bart Frijns, Aaron Gilbert and Alireza Tourani-Rad
The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out the…
Abstract
Purpose
The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out the determinants of price discovery between the two markets.
Design/methodology/approach
Gonzalo Granger Component Shares and Hasbrouck Information Shares were estimated annually for a sample of 19 cross-listed stocks between 1998 and 2012. Then dynamic panel regressions were used to investigate the driving factors behind price discovery between the NZX and ASX.
Findings
Strong downward trends were observed in the contribution to price discovery of the NZX, both for New Zealand firms cross-listing on the ASX and Australian firms cross-listing on the NZX. While in the early years in our sample period, price discovery is dominated by the home market, by 2012, 50 per cent of price discovery for New Zealand firms takes place on the ASX, and the NZX acts as a satellite market for Australian firms. It was also observed that the NZX share of trading activity has a strong positive effect on the NZX level of price discovery, while there is a negative relationship with relative bid–ask spreads.
Practical implications
Results suggest that the importance of the NZX relative to the ASX with regards to price discovery is decreasing over time. Given the importance of price discovery for exchanges, such a finding is concerning for the NZX. The determinants of price discovery found in the paper, such as relative volume and spreads, do, however, offer some guidance on how the NZX could regain price discovery.
Originality/value
This paper offers a longer and broader analysis of price discovery between the NZX and ASX, two highly integrated markets, and extends previous work by exploring the drivers of price discovery in a panel setting.
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Shaw Chen, Bing-Xuan Lin, Yaping Wang and Liansheng Wu
The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm…
Abstract
The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm performance for a sample of Chinese cross-listed companies. We show that cross-listed firms display higher overall quality of corporate governance compared to non-cross-listed firms. Consequently better corporate governance results in higher operating performance. Our results support the bonding hypothesis of cross-listing. Furthermore, we also illustrate that the cross-listing status encapsulates the higher quality of corporate governance that leads to higher operating performance. When forecasting performance of cross-listing companies, it is therefore important to recognize the substitute effect between cross-listing and corporate governance.
This work presents evidence that cross‐isted stocks (ADRs) are traded in markets that are not completely integrated, and it is the presence of high frequency arbitrage activity…
Abstract
This work presents evidence that cross‐isted stocks (ADRs) are traded in markets that are not completely integrated, and it is the presence of high frequency arbitrage activity that forces these stock pairs to be most commonly in relative equilibrium. A Threshold Autoregressive (TAR) model tests the hypothesis that the reversion to equilibrium of the price discrepancy series is a nonlinear function that has nontrivial thresholds, and that large price discrepancies are relatively short‐lived. The TAR specification models the neutralization of arbitrage forces with thresholds that separate outer regions where large discrepancies have a strong reversion to equilibrium from a central region where transaction costs significantly mitigate this reversion.
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Kim Hin David Ho, Kwame Addae-Dapaah and Fang Rui Lina Peck
The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs).
Abstract
Purpose
The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs).
Design/methodology/approach
The paper adopts the event study methodology to assess the abnormal returns (ARs). Pre- and post-cross-listing changes in the risk exposure for the domestic and foreign markets are examined, via a modified two-factor international asset pricing model. A comparison is made for two broad cross-listings, namely, the depositary receipts and the dual ordinary listings, to examine the impacts from institutional differences.
Findings
Cross-listed REITs generally experience positive and significant ARs throughout the event window, implying significant superior returns associated with the cross-listing for REITs. On systematic risks, REITs exhibit significant decline in their domestic market β coefficients after the cross-listing. However, the foreign market β coefficients do not yield conclusive evidence when compared across the sample.
Research limitations/implications
Results are consistent with prudential asset allocation for potential diversification gains from the cross-listing, as the reduction from the domestic market beta is more significant than changes in the foreign market beta.
Practical implications
The results and findings should incentivise REIT managers to explore viable cross-listing.
Social implications
Such cross-listing for REITs should enhance risk diversification.
Originality/value
This is a pioneer study on cross-listing of REITs. It provides a basis for investment decision making, and could provoke further research and discussion.
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The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction exists…
Abstract
Purpose
The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction exists between the two exchanges.
Design/methodology/approach
This article identifies extreme price movements of stocks (winners and losers) in the non‐US stock exchanges that also trade as American depository receipts (ADRs) in the US market, and measure the US market response. Also identifies extreme price movements of stocks (winners and losers) in the US stock exchanges that also trade in the non‐US markets, and measure the non‐US market response.
Findings
Finds a significant reversal of winners and losers in the US market, which suggests that the US market attempts to correct the pricing in non‐US markets. Also finds that extreme ADR price movements in the US markets are followed by corrections in the non‐US market.
Research limitations/implications
Market participants appear to monitor unusual stock price movements that just occurred in other markets, and correct for unusual price movements that cannot be rationalized. Such activity in global markets expedites the process by which price discrepancies are corrected. The evidence also suggests that the cost of equity in one market can be influenced by the actions of investors in another market.
Originality/value
This study of non‐US stocks that are cross‐listed in the US in the form of ADRs allows us to examine the interaction of pricing in a stock's local market with pricing in the US market.
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Jang-Chul Kim, Qing Su and Teressa Elliott
This study aims to investigate the relationship among liquidity, information asymmetry and political risk for non-US stocks listed on the NYSE. Additionally, the study aims to…
Abstract
Purpose
This study aims to investigate the relationship among liquidity, information asymmetry and political risk for non-US stocks listed on the NYSE. Additionally, the study aims to explore the impact of political tension on market quality.
Design/methodology/approach
This research adopts a quantitative methodology to examine the interplay between liquidity, information asymmetry and political risk in non-US stocks on the NYSE. A comprehensive analysis encompasses stocks from countries with varying political risk levels, demonstrating a correlation between lower political risk and improved market quality. In assessing the impact of US–China trade conflicts on Chinese stocks, political shocks are scrutinized. Results indicate that heightened political tension exacerbates information asymmetry and diminishes market liquidity, underscoring the susceptibility of stocks in politically strained environments to adverse shocks.
Findings
Non-US stocks from countries with lower political risk show higher liquidity and market efficiency, with narrower bid-ask spreads and smaller price impacts of trades. These stocks also demonstrate a higher market quality index, indicating improved overall market performance. In addition, during periods of escalated US –China political tension over trade policy, the liquidity of non-US stocks from China worsens, leading to wider bid-ask spreads and increased information asymmetry.
Originality/value
This study provides novel insights into the impact of political risk on stock market dynamics for non-US stocks listed on the NYSE, with a particular emphasis on the US –China trade conflict's effect on Chinese stocks.
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Congsheng Wu and Ke Chen
A number of Chinese firms have dual-listed in USA and China. The US listing takes the form of American Depositary Receipts (ADRs) whereas the China listing in the form of…
Abstract
Purpose
A number of Chinese firms have dual-listed in USA and China. The US listing takes the form of American Depositary Receipts (ADRs) whereas the China listing in the form of A-shares. Though ADRs and their underlying A-shares lack full fungibility due to regulatory constraints, they nevertheless represent the same claiming rights and hence should be affected by the same fundamentals or news. The purpose of this paper is to examine the mutual return influences between ADRs and A-shares of dual-listed Chinese firms, and whether and how the recent global financial crisis has altered the mutual feedback dynamics.
Design/methodology/approach
The paper uses the bivariate VAR approach to model the returns of ADRs and A-shares. The model is jointly estimated with the three-stage least squares (3SLS) method. It also accounts for the non-synchronous trading problem caused by the fact that the Chinese and US markets are located in different time zones and that the two market observe different national and religious holidays.
Findings
The authors find significant mutual return transmissions between ADRs and their A-share counterparts. In the absence of local market sentiments, the return transmission is more prevalent going from USA to China than it is the other way around. After the market factors are included in the models, the information flows between A-shares and ADRs become stronger and bidirectional. Additionally, both ADR and A-share returns are strongly affected by the market sentiment of the marketplace where they are traded. Lastly, the authors find evidence showing that the recent global financial crisis has enhanced the linkage between ADRs and their underlying A-shares.
Originality/value
This paper adopts a more rigorous approach to overcome the potential issue caused by non-synchronous trading. It investigates how the global financial crisis has altered the ADR and A-share return feedback dynamics.
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Marie‐Claude Beaulieu, Marie‐Hélène Gagnon and Lynda Khalaf
The purpose of this paper is to examine financial integration across North American stock markets from January 1984 to December 2003.
Abstract
Purpose
The purpose of this paper is to examine financial integration across North American stock markets from January 1984 to December 2003.
Design/methodology/approach
The paper uses an arbitrage pricing theory framework. The risk factors considered are the three Fama and French factors augmented with momentum for both countries as well as their international counterparts. Both the domestic and international four factor models in cross section and test for partial, mild, and strong financial integration are estimated. The domestic and international model are estimated on domestic portfolios and on a subset of Canadian cross listings matched with American stocks.
Findings
Results can be summarized as follows: first, results show stronger evidence of mild rather than partial or strong integration in both domestic portfolios and interlisted stocks. Second, interlisted stocks appear at first glance to be more integrated than the domestic portfolios, but this result can be attributed to the poor explanatory power of the models applied to interlisted stocks. Once the authors rule out the case where the model does not generate statistically important risk premiums for both countries, the evidence of integration is similar in both domestic and interlisted stocks. Third, the domestic and international models have similar explanatory power, although the domestic model performs better with the Canadian interlisted stocks are found.
Originality/value
The results suggest that, in an international context, a portfolio manager is better off using the four factor model as a benchmark in cross sections rather than the single market. Furthermore, if the agency problem described in Karolyi is ignored, Canadian interlisted stocks and Canadian domestic portfolios have the same diversification potential.
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Jun Chen, Alireza Tourani-Rad and Ronghua Yi
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample…
Abstract
Purpose
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample of Chinese firms listed on the China and Hong Kong stock exchanges.
Design/methodology/approach
The sample consists of 67 Chinese cross-listed firms on A-share and H-share markets out of which 18 firms are allowed to be sold short/ traded on margin since March 2010. Using pre- and post-event period, the authors compare and contrast various market microstructure variables. The contributions of the home (A-share) and overseas (H-share) markets to the incorporation of new information into prices are calculated following the permanent-transitory approach of Gonzalo and Granger (1995) as well as the adverse selection component of Lin et al. (1995).
Findings
The findings indicate that for the group of Chinese cross-listed firms that are not allowed to be sold short or bought on margin, the home (A-share) market contributes more to the price discovery process over time. However, for the group of cross-listed firms that are eligible for short selling and margin trading, the authors observe no significant difference in the contribution of either A- or H-share markets to the price discovery. The contribution of home market for these firms is even lower around the announcement of major events. The authors further find that while the short sale activities appears to be informative, measured by the adverse selection (AS) component of spread, on the whole they have not led the A-share markets to be more informative.
Research limitations/implications
The sample of cross-listed Chinese firms that are allowed to be sold short or bought on margin are rather limited. Hence, the results should be read with some caution.
Practical implications
The removal of short selling constraints appears to improve the contribution of the respective markets to the process price discovery, in the case for larger cross-listed firms.
Originality/value
The authors shed new lights on how the introduction of short selling and margin trading impacts on the price discovery of the Chinese cross-listed firms. A further contribution of the study is the use of high frequency data, while most of the previous studies on the Chinese markets use daily data.
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