How are stock prices affected by the location of trade?
We examine pairs of large, Siamese twin' companies whose stocks are traded around the world but have different trading and ownership habitats. Twins pool their cashflows so, with integrated markets, twin stocks should move together. In contrast, the relative prices of twin stocks appear correlated with the markets where they are traded most, i.e., a twin's relative price rises when the market on which it is relatively intensively traded rises. We examine several explanations for this phenomenon: discretionary uses of dividend income by parent companies; differences in parent expenditures; voting rights issues; currency fluctuations; ex-dividend-date timing issues; and tax-induced investor heterogeneity. Only that latter hypothesis can explain some (but not all) of the facts. Other possible explanations include: i) country-specific sentiment shocks affect share price movements of locally-traded stocks in proportion to their local trading/ownership intensity, and ii) investors are rational, but markets are segmented by frictions other than international transactions costs, such as agency problems.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Gikas Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1994.
"What Moves the Discount on Country Equity Funds?,"
in: The Internationalization of Equity Markets, pages 345-403
National Bureau of Economic Research, Inc.
- Gikas A. Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1993. "What moves the discount on country equity funds?," Research Paper 9324, Federal Reserve Bank of New York.
- Gikas A. Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1993. "What Moves the Discount on Country Equity Funds?," NBER Working Papers 4571, National Bureau of Economic Research, Inc.
- Bodurtha, James N, Jr & Kim, Dong-Soon & Lee, Charles M C, 1995. "Closed-End Country Funds and U.S. Market Sentiment," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 879-918.
- Kenneth A. Froot & Emil Dabora, 1998.
"How are Stock Prices Affected by the Location of Trade?,"
NBER Working Papers
6572, National Bureau of Economic Research, Inc.
- Froot, Kenneth A. & Dabora, Emil M., 1999. "How are stock prices affected by the location of trade?," Journal of Financial Economics, Elsevier, vol. 53(2), pages 189-216, August.
- Rosenthal, Leonard & Young, Colin, 1990. "The seemingly anomalous price behavior of Royal Dutch/Shell and Unilever N.V./PLC," Journal of Financial Economics, Elsevier, vol. 26(1), pages 123-141, July.
- Charles Lee & Andrei Shleifer & Richard Thaler, 1990.
"Investor Sentiment and the Closed-End Fund Puzzle,"
NBER Working Papers
3465, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:53:y:1999:i:2:p:189-216. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.