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Price discovery for cross-listed firms with foreign IPOs

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

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.

Suggested Citation

  • Alhaj-Yaseen, Yaseen S. & Lam, Eddery & Barkoulas, John T., 2014. "Price discovery for cross-listed firms with foreign IPOs," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 80-87.
    • Handle: RePEc:eee:finana:v:31:y:2014:i:c:p:80-87
    DOI: 10.1016/j.irfa.2013.09.006
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    3. Xia, Chuanxin & Yang, Nien-Tzu & Lin, Chaonan & Ko, Kuan-Cheng, 2021. "Multi-market trading, price delay, and return predictability," Finance Research Letters, Elsevier, vol. 40(C).
    4. Frijns, Bart & Gilbert, Aaron & Tourani-Rad, Alireza, 2015. "The determinants of price discovery: Evidence from US-Canadian cross-listed shares," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 457-468.
    5. Cepoi, Cosmin-Octavian & Anghel, Dan-Gabriel & Pop, Ionuţ Daniel, 2021. "Asymmetries and flight-to-safety effects in the price discovery process of cross-listed stocks," Economic Modelling, Elsevier, vol. 98(C), pages 302-318.

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    More about this item

    Keywords

    Bivariate GARCH; Price discovery; Return and volatility spillovers; Cross-listed stocks; Multi-market trading;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G1 - Financial Economics - - General Financial Markets

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