Going Public Abroad: The Dynamics of Return Spillovers in an Atypical International Cross Listing Case

In this study we investigate the dynamics of the return transmission mechanism across markets (spillover effects) in the atypical international cross listing case where the stock has gone public abroad and then cross listed in the home market. Previous studies have examined such dynamic return interactions in the typical case, where a company goes public in the domestic capital market and subsequently cross lists its stock in a foreign stock exchange. Our sample consists of Israeli stocks that went public in the US and then cross listed in the home market. The empirical evidence suggests that return spillovers are significantly positive in both directions but home-to-US return spillovers are stronger than those of US-to-home. The magnitude of the return dependencies across the home and the US markets is weaker among firms facing greater risk of information asymmetry. There is a tendency for reversal of the US market returns associated with high-volume shocks in the home market but a tendency for continuation in the opposite direction. The greater the information asymmetry facing firms the greater the tendency for continuation and the weaker the tendency for reversal.