Price Discovery across the Rhine
We study opening prices set simultaneously for German and French stocks in Frankfurt and Paris. In our model investors and traders based in the same country as the firm have better information on its value than foreign traders. Our theory implies that prices set on the domestic market differ from (and are more informationally efficient than) prices set on the foreign market. Empirically, we find significant price discrepancies between home and foreign prices, consistent with lack of integration of international financial markets. For German stocks, home prices are found to be informationally more efficient than foreign prices. The informational efficiency of French stock prices is comparable in the two markets when Frankfurt traders can observe Paris preopening prices before the opening.
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.