Price Discovery across the Rhine
AbstractWe study opening prices set simultaneously for German and French stocks in Frankfurt and Paris. In our model investors and traders based in the same country as the firm have better information on its value than foreign traders. Our theory implies that prices set on the domestic market differ from (and are more informationally efficient than) prices set on the foreign market. Empirically, we find significant price discrepancies between home and foreign prices, consistent with lack of integration of international financial markets. For German stocks, home prices are found to be informationally more efficient than foreign prices. The informational efficiency of French stock prices is comparable in the two markets when Frankfurt traders can observe Paris preopening prices before the opening.
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Bibliographic InfoArticle provided by Springer in its journal Review of Finance.
Volume (Year): 8 (2004)
Issue (Month): 1 ()
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Web page: http://springerlink.metapress.com/link.asp?id=111870
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F30 - International Economics - - International Finance - - - General
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Les Cahiers de Recherche
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