How are Stock Prices Affected by the Location of Trade? / Kenneth A. Froot, Emil Dabora.

Format:

Book

Author/Creator:

Froot, Kenneth A.

Contributor:

National Bureau of Economic Research.

Dabora, Emil.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6572.

NBER working paper series no. w6572

Language:

English

Subjects (All):

Stock exchanges--Econometric models.

Stock exchanges.

Closed-end funds--Econometric models.

Closed-end funds.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Cambridge, Massachusetts : National Bureau of Economic Research, 1998.

Summary:

We examine pairs of large, Siamese twin' companies whose stocks are traded around the world but have different trading and ownership habitats. Twins pool their cashflows so, with integrated markets, twin stocks should move together. In contrast, the relative prices of twin stocks appear correlated with the markets where they are traded most, i.e., a twin's relative price rises when the market on which it is relatively intensively traded rises. We examine several explanations for this phenomenon: discretionary uses of dividend income by parent companies; differences in parent expenditures; voting rights issues; currency fluctuations; ex-dividend-date timing issues; and tax-induced investor heterogeneity. Only that latter hypothesis can explain some (but not all) of the facts. Other possible explanations include: i) country-specific sentiment shocks affect share price movements of locally-traded stocks in proportion to their local trading/ownership intensity, and ii) investors are rational, but markets are segmented by frictions other than international transactions costs, such as agency problems.

Notes:

Print version record

May 1998.