Information Asymmetry, Market Segmentation and Cross-Listing: Implicatons for Event Study Methodology
AbstractThis paper connects three subjects related to international financial markets -- (i) information asymmetry, (ii) market segmentation, and (iii) cross-listings -- and highlights their implication for event study methodology. When firms list equities on more than one exchange, and the exchanges are characterized by different information sets, a problem arises as to which exchange(s) to include in the event study sample. If market segmentation impedes the arbitrage of these multiple responses, then the use of a single listing (for a firm that is cross-listed) can yield abnormal return estimates that are biased. In such circumstances, using re-turns from all the markets in which a firm’s securities are listed not only increases the sample size (often an important consideration when undertaking event studies in emerging markets), but also enables full-information abnormal return estimates to be obtained. What is required is a method that extracts the independent information from each listing while counting the com-mon information only once. In this paper, we develop an estimation procedure that achieves these twin objectives. We then apply our approach to an event study of Chinese OMAs and compare results from alternative samples and estimators. We demonstrate that including re-turn data from cross-listings of the same firm can result in substantially different conclusions.
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Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 12/08.
Length: 45 pages
Date of creation: 30 Apr 2012
Date of revision:
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Event study; multiple listings; mergers and acquisitions; China;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"What Segments Equity Markets?,"
NBER Working Papers
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- Roberto Pascual & Bartolomé Pascual-Fuste & Francisco Climent, 2001.
"Cross-listing, Price Discovery and the Informativeness of the Trading Process,"
Business Economics Working Papers
wb014511, Universidad Carlos III, Departamento de Economía de la Empresa.
- Pascual, Roberto & Pascual-Fuster, Bartolome & Climent, Francisco, 2006. "Cross-listing, price discovery and the informativeness of the trading process," Journal of Financial Markets, Elsevier, vol. 9(2), pages 144-161, May.
- Bartolomé Pascual-Fuster & Francisco Climent & Roberto Pascual, 2003. "Cross-Listing, Price Discovery And The Informativeness Of The Trading Process," Working Papers. Serie EC 2003-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- Manapol Ekkayokkaya & Phil Holmes & Krishna Paudyal, 2009. "The Euro and the Changing Face of European Banking: Evidence from Mergers and Acquisitions," European Financial Management, European Financial Management Association, vol. 15(2), pages 451-476.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
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