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Price clustering and economic freedom: The case of cross-listed securities

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  • Baig, Ahmed S.
  • Blau, Benjamin M.
  • Whitby, Ryan J.

Abstract

This study develops and tests the hypothesis that economic freedom in a particular country can explain the level of price clustering in financial markets. The hypothesis is motivated by the idea that the lack of economic freedom may create uncertainty, which motivates investors to settle on round prices. Using a broad sample of American Depositary Receipts (ADRs), we find that the level of price clustering in ADRs is decreasing in the economic freedom of the home country. The economic freedom components that have the largest effects are the level of regulation and the stability of monetary policy in the ADR home country. To make stronger causal inferences, we examine the price clustering of Japanese, vis-à-vis non-Japanese, ADRs in response to an event that tightened regulation in Japanese money markets. Results show that, relative to non-Japanese ADRs, the price clustering of Japanese ADRs meaningfully increases in response to this change.

Suggested Citation

  • Baig, Ahmed S. & Blau, Benjamin M. & Whitby, Ryan J., 2019. "Price clustering and economic freedom: The case of cross-listed securities," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 1-12.
    • Handle: RePEc:eee:mulfin:v:50:y:2019:i:c:p:1-12
    DOI: 10.1016/j.mulfin.2019.04.002
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    References listed on IDEAS

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    Cited by:

    1. Aharon, David Y. & Siev, Smadar, 2021. "COVID-19, government interventions and emerging capital markets performance," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Aharon, David Y. & Baig, Ahmed S. & DeLisle, R. Jared, 2022. "The impact of government interventions on cross-listed securities: Evidence from the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 46(PA).
    3. Baig, Ahmed S. & Butt, Hassan Anjum & Haroon, Omair & Rizvi, Syed Aun R., 2021. "Deaths, panic, lockdowns and US equity markets: The case of COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 38(C).

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    More about this item

    Keywords

    Price clustering; Economic freedom; Free trade; Monetary policy; Regulation; American depositary receipts; Round prices;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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