An investigation of the price discovery for cross-listed stocks: Evidence from New Zealand and Australian stock markets
Dassanayake, Wajira; Li, Xiaoming; Buhr, Klaus
Citation:Dassanayake, W., Li, X., and Buhr, K. (2013). An investigation of the price discovery for cross-listed stocks: Evidence from New Zealand and Australian stock markets. Paper presented at Auckland Region Accounting Conference, Auckland, New Zealand.
Permanent link to Research Bank record:http://hdl.handle.net/10652/2791
This study investigates the price discovery of selected cross-listed stocks on the Australian Stock Exchange (ASX) and the New Zealand Stock Exchange (NZX). It examines prices and exchange rates over the period 1st January 2008 to 31st December 2011 when both markets were in a bear trading phase. Using intraday data of three Australian stocks and five New Zealand stocks, we investigate the price discovery dynamics by evaluating the vector error correction mechanism (VECM), Hasbrouck’s (1995) information share (IS) and Grammig et al.’s (2005) conditional information share (CIS). Consistent with previous research, we find that the price series of the sample of crosslisted stocks on the ASX and the NZX are cointegrated. We also find that the price discovery takes place mostly on the home market for the Australian domiciled firms and for all but one of the New Zealand domiciled firms. This is true in terms of both Hasbrouck’s (1995) information share and Grammig et al.’s (2005) conditional information share. However, when we evaluate price discovery dynamics over time using the information share approach, our findings differ from those of Frijns et al. (2010). In bull market conditions they find an increasing trend in the significance of the ASX. In a bear market setting, we find the NZX growing in importance with a declining significance for the ASX for the Australian as well as New Zealand domiciled companies.