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Round-the-Clock Price Discovery for Cross-Listed Stocks: US-Dutch Evidence

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Author Info
Albert J. Menkveld () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)
Siem Jan Koopman () (Econometrics and Operational Research, FEWEB, Vrije Universiteit Amsterdam)
André Lucas () (Financing and Business Management for the Financial Sector, FEWEB, Vrije Universiteit Amsterdam)

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Abstract

U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We use a state space model to study 24-hour price discovery. As opposed to the standard "variance ratio'' approach, this model deals naturally with (i) simultaneous quotes in an overlap, (ii) missing observations in a non-overlap, (iii) noise due to transitory microstructure effects, and (iv) contemporaneous correlation in returns due to market-wide factors. For NYSE-listed Dutch stocks, home market hours are a factor three more informative than U.S. market hours, which, in turn, are twice as informative as overnight hours. Surprisingly, strongest price discovery takes place in the NYSE preopening. The model shows results that are significantly different from the variance ratio approach.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-037/2.

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Date of creation: 23 May 2003
Date of revision: 13 Oct 2003
Handle: RePEc:dgr:uvatin:20030037

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Related research
Keywords: price discovery; cross-list; round-the-clock; 24-hour; ADR; international.;

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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    Other versions:
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Cited by:
(explanations, 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.)

  1. Menkveld, Albert J., 2006. "Splitting orders in overlapping markets: a study of cross-listed stocks," Serie Research Memoranda 0003, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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  2. Menkveld, Albert J. & Cheung, Yiu C. & Jong, Frank de, 2006. "Euro-Area Sovereign Yield Dynamics: the role of order imbalance," Serie Research Memoranda 0006, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
    Other versions:
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