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Price transmission dynamics between informationally linked securities

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  • Kate Phylaktis
  • Gikas Manalis

Abstract

The paper examines whether location of trade matters in the pricing of internationally listed securities by examining the price dynamics of stocks listed on the Greek and the two German stock exchanges, Frankfurt and Berlin. Through the investigation of the various possibilities of short-run and long-run arbitrage profits it is found that the prices of stocks in the German markets are priced with reference to the Greek market, implying that the location of trade does not matter and that there is a certain degree of market integration. In contrast, it is found that the price discovery process takes place in the German markets, although most of the trading volume is concentrated in the Greek market.

Suggested Citation

  • Kate Phylaktis & Gikas Manalis, 2005. "Price transmission dynamics between informationally linked securities," Applied Financial Economics, Taylor & Francis Journals, vol. 15(3), pages 187-201.
    • Handle: RePEc:taf:apfiec:v:15:y:2005:i:3:p:187-201
    DOI: 10.1080/0960310042000306970
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    Cited by:

    1. Keshin Tswei & Jing‐yi Lai, 2009. "Information contents misjudged: Digressive convergence to equilibrium in cointegrated prices," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 183-189, October.
    2. Wang, Xue & Yao, Lee J. & Fang, Victor, 2013. "Stock prices and the location of trade: Evidence from China-backed ADRs," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 677-688.
    3. Tswei, Keshin, 2013. "Is transaction price more value relevant compared to accounting information? An investigation of a time-series approach," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1062-1078.
    4. Tswei, Keshin & Lai, Jing-yi, 2009. "Information contents misjudged: Digressive convergence to equilibrium in cointegrated prices," Review of Financial Economics, Elsevier, vol. 18(4), pages 183-189, October.
    5. Katty Perez Aquino & Sunil Poshakwale, 2006. "Price determinants of American Depositary Receipts (ADR): a cross-sectional analysis of panel data," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1225-1237.

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