Price Discovery for Cross-Listed Firms with Foreign IPOs

Yaseen S. Alhaj-Yaseen, Eddery Lam, John Barkoulas

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

We investigate the inter-market return and volatility linkages for an atypical case of firms with foreign IPOs that subsequently cross-listed in their domestic market. In particular, our data set consists of a unique sample of 29 Israeli firms that went public in the US (host market) and then cross-listed in the Israeli market (home market). To estimate the spillover effects, we employ bivariate GARCH models, assuming both constant and dynamic conditional correlation specifications. At the aggregate market level, we find unidirectional mean and volatility spillovers from the US to the Israeli market. For the portfolios of Israeli cross-listed stocks, we report significant spillovers, at both the mean and volatility levels, from the underlying stocks in the Israeli market to their American Depository Receipts (ADRs) but not vice versa. Thus, the home market dominates the host market in the price discovery process in this atypical international cross-listing case, providing new evidence in support of the home bias hypothesis. We also find that external shocks originating from the Middle East peace process have no impact on the conditional correlation between the two markets but external shocks originating from the world and regional markets impact the conditional correlation positively.

Original languageAmerican English
JournalInternational Review of Financial Analysis
Volume31
DOIs
StatePublished - Jan 1 2014

Disciplines

  • Business Administration, Management, and Operations
  • Finance
  • Finance and Financial Management
  • Economics

Keywords

  • Bivariate GARCH
  • Cross-listed stocks
  • Multi-market trading
  • Price discovery
  • Return and volatility spillovers

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