Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
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Synchronous Price Discovery of Cross-Listings

  • Chen, Haiqiang (Wang Yanan Institute for Studies in Economics, Xiamen University) ;
  • Choi, Moon Sub (College of Business Administration, Ewha Womans University)
  • Received : 2013.11.11
  • Accepted : 2014.02.10
  • Published : 2014.05.30
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Abstract

Extending from Grossman and Stiglitz (1980), we provide an asset pricing model of a synchronously traded cross-listed pair under information asymmetry. Following Garbade and Silber (1983), the model further embraces multi-market price discovery in a dynamic framework. The implications are as follows: The price sensitivity of holdings is higher for informed traders than for uninformed traders; the largest cross-border price spread occurs in the absence of arbitrageurs; price discovery is more likely in markets with a larger population of informed traders; and parity convergence accelerates with a higher price elasticity of demand of arbitrageurs.

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References

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