Mispricing and Lasting Arbitrage between Parallel Markets in the Czech Republic
AbstractIf co-existing parallel markets are efficient, then arbitrage will maintain a correct pricing relationship. A related question is whether two parallel emerging markets offering more or less the same securities but using different institutional designs, can behave as a single, fully integrated market. In this paper we introduce an explicit model of price convergence (with transaction costs), in which price differences are studied using levels of arbitrage activity. For the empirical analysis we use two parallel markets in the Czech Republic 97 the Prague Stock Exchange (PSE) and the RMS (over-the-counter system). In particular, we study the degree of arbitrage activity for different segments of the PSE and the evolution of arbitrage in the early history of these emerging markets. The empirical results provide evidence of market linkage for actively traded stocks. We find a significant relationship between the segment of the market to which a given firm belongs and the estimated level of arbitrage trading. Moreover, the level of arbitrage activity increases over time for all market segments, and, as the markets mature, the differences among the segments gradually disappear.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0012007.
Length: 33 pages
Date of creation: 19 Feb 2001
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Note: Type of Document - Acrobat PDF; pages: 33 ; figures: Included
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Arbitrage; Co-movements of financial markets; Emerging markets; Integration of emerging markets; Mispricing;
Other versions of this item:
- Jan Hanousek & Libor Nemecek, 2002. "Mispricing and lasting arbitrage between parallel markets in the Czech Republic," The European Journal of Finance, Taylor & Francis Journals, vol. 8(1), pages 46-69.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-27 (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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