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Related securities and price discovery: Evidence from NYSE-listed Non-U.S. stocks

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  • Korczak, Piotr
  • Phylaktis, Kate

Abstract

In this paper we analyze whether handling related securities improves a market maker's information environment and helps to incorporate new information in stock prices. Our empirical tests are focused on New York Stock Exchange specialists and the U.S. share in price discovery of 64 British and French companies cross-listed on the NYSE. We define related securities as stocks from the same country, the same region, or other foreign stocks. We find strong evidence that a higher prominence of related stocks in the specialist portfolio is associated with a higher U.S. share in price discovery of our sample firms. We interpret our findings as evidence that concentrating market makers in similar stocks reduces information asymmetries and improves the information environment as market makers can extract information relevant to a stock from order flow to related securities. To support our argument, we show that the adverse selection component of the bid-ask spread is negatively related to the prominence of other foreign stocks in the specialist portfolio.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 17 (2010)
Issue (Month): 4 (September)
Pages: 566-584

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Handle: RePEc:eee:empfin:v:17:y:2010:i:4:p:566-584

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: NYSE specialists Cross-listing Related stocks Price discovery;

References

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Cited by:
  1. Kehrle, Kerstin & Peter, Franziska J., 2013. "Who moves first? An intensity-based measure for information flows across stock exchanges," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1629-1642.

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