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Interactions between Markets and Dually Listed Stocks: The Case of the Czech Republic

Listed author(s):
  • Richard Podpiera

This paper considers the interaction among equity markets in the Czech Republic and those in developed countries. Also considered are cross-listed securities traded in the Czech Republic whose global depository receipts (GDRs) are listed in London. The models used include Granger causality, cointegration, and error-correction models. The results demonstrate that the Czech market is indeed affected by the development of major international equity indices. This, however, explains little of domestic market variability, so other factors related to stock market development need to be explicated. The prices of cross-listed securities on the domestic and London markets are cointegrated and an error-correction mechanism exists that corrects random deviations from the parity. As this error-correction mechanism appears to be rather symmetric, and as the Granger causality tests suggest different causality patterns for individual stocks, none of the two markets emerges as the dominant one. A variety of interactions exist between the local and London GDR markets.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 51 (2001)
Issue (Month): 3 (March)
Pages: 166-181

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Handle: RePEc:fau:fauart:v:51:y:2001:i:3:p:166-181
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