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Estimation of global systematic risk for securities listed in multiple markets

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Author Info
Gauri L. Ghai, Maria E. De Boyrie, Shahid Hamid, Arun J. Prakash

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Abstract

In this era of rapid globalization of financial markets there has been a substantial increase in cross-listings of stocks in foreign and regional capital markets. As many as a third to a half of the stocks in some major exchanges are foreign listed. The multiple listings of stocks has major implications for the concept of systematic risk. This paper demonstrates that the estimator for systematic risk and the methodology itself changes when stocks are listed in multiple markets. The paper suggests general procedures, using maximum information from the multiple markets, to obtain the estimator of beta under a variety of assumptions about the error terms of the market models in the different capital markets. The assumptions pertain both to the volatilities of the abnormal returns in each market, and to the relationship between the markets.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 7 (2001)
Issue (Month): 2 (June)
Pages: 117-130
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Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:117-130

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Keywords: Capital Markets Systematic Risk Estimators;

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  2. Clarkson, Peter M & Thompson, Rex, 1990. " Empirical Estimates of Beta When Investors Face Estimation Risk," Journal of Finance, American Finance Association, vol. 45(2), pages 431-53, June. [Downloadable!] (restricted)
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  4. Fisher, Lawrence & Kamin, Jules H., 1985. "Forecasting Systematic Risk: Estimates of ?Raw? Beta that Take Account of the Tendency of Beta to Change and the Heteroskedasticity of Residual Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 127-149, June. [Downloadable!]
  5. Alexander, Gordon J. & Eun, Cheol S. & Janakiramanan, S., 1988. "International Listings and Stock Returns: Some Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 135-151, June. [Downloadable!]
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    Other versions:
  7. Alexander, Gordon J & Eun, Cheol S & Janakiramanan, S, 1987. " Asset Pricing and Dual Listing on Foreign Capital Markets: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 151-58, March. [Downloadable!] (restricted)
  8. Shahrokh M Saudagaran, 1988. "An Empirical Study of Selected Factors Influencing the Decision to List on Foreign Stock Exchanges," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 19(1), pages 101-127, March. [Downloadable!] (restricted)
  9. Chan, Louis K. C. & Lakonishok, Josef, 1992. "Robust Measurement of Beta Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(02), pages 265-282, June. [Downloadable!]
  10. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March. [Downloadable!] (restricted)
  11. Jayaraman, Narayanan & Shastri, Kuldeep & Tandon, Kishore, 1993. "The impact of international cross listings on risk and return : The evidence from American depository receipts," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 91-103, February. [Downloadable!] (restricted)
  12. Shahrokh M Saudagaran & Gary C Biddle, 1995. "Foreign Listing Location: A Study of MNCs and Stock Exchanges in Eight Countries," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 26(2), pages 319-341, June. [Downloadable!] (restricted)
  13. Eubank, Arthur A, Jr & Zumwalt, J Kenton, 1979. "An Analysis of the Forecast Error Impact of Alternative Beta Adjustment Techniques and Risk Classes," Journal of Finance, American Finance Association, vol. 34(3), pages 761-76, June. [Downloadable!] (restricted)
  14. Cornell, Bradford & Dietrich, J. Kimball, 1978. "Mean-Absolute-Deviation versus Least-Squares Regression Estimation of Beta Coefficients," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(01), pages 123-131, March. [Downloadable!]
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