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Price Discovery Across the Rhine

Author

Listed:
  • Biais, Bruno
  • Martinez, Isabelle

Abstract

This Paper studies the formation of opening prices for German and French stocks, simultaneously traded in Frankfurt and Paris. We analyse theoretically the case where investors and traders based in the same country as the firm have better information on its value than foreign traders. Our model implies that prices set on the domestic market should be informationally more e±cient than prices set on the foreign market. For German stocks, our empirical results are consistent with theory. The informational e±ciency of French stock prices is comparable in the two markets when the Frankfurt specialist can observe Paris preopening prices before opening the market.

Suggested Citation

  • Biais, Bruno & Martinez, Isabelle, 2001. "Price Discovery Across the Rhine," CEPR Discussion Papers 2878, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2878
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    Cited by:

    1. Foucault, Thierry & Gehrig, Thomas, 2008. "Stock price informativeness, cross-listings, and investment decisions," Journal of Financial Economics, Elsevier, vol. 88(1), pages 146-168, April.
    2. Tsiakas, Ilias, 2008. "Overnight information and stochastic volatility: A study of European and US stock exchanges," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 251-268, February.
    3. Benos, Evangelos & Payne, Richard & Vasios, Michalis, 2016. "Centralized trading, transparency and interest rate swap market liquidity: evidence from the implementation of the Dodd-Frank Act," Bank of England working papers 580, Bank of England.
    4. Idier, J., 2006. "Stock exchanges industry consolidation and shock transmission," Working papers 159, Banque de France.

    More about this item

    Keywords

    information assymeteries; international financial markets integration; market microstructure;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General

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