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Price Discovery across the Rhine

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Author Info

  • Bruno Biais
  • Isabelle Martinez

Abstract

We 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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File URL: http://journals.kluweronline.com/issn/1572-3097/contents
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Bibliographic Info

Article provided by Springer in its journal Review of Finance.

Volume (Year): 8 (2004)
Issue (Month): 1 ()
Pages: 49-74

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Handle: RePEc:kap:eurfin:v:8:y:2004:i:1:p:49-74

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Web page: http://springerlink.metapress.com/link.asp?id=111870

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Cited by:
  1. Foucault, Thierry & Gehrig, Thomas, 2006. "Stock price informativeness, cross-listings and investment decisions," Les Cahiers de Recherche 840, HEC Paris.
  2. Tsiakas, Ilias, 2008. "Overnight information and stochastic volatility: A study of European and US stock exchanges," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 251-268, February.
  3. Idier, J., 2006. "Stock exchanges industry consolidation and shock transmission," Working papers 159, Banque de France.

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