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On The Rate Of Information Absorption In The Conditional Variance Of Ses Dual Listed Stocks

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  • WAI MUN FONG

    (Department of Finance and Accounting, National University of Singapore, Kent Ridge Crescent, Singapore 119260, Singapore)

  • PHENG LUI CHNG

    (Department of Finance and Accounting, National University of Singapore, Kent Ridge Crescent, Singapore 119260, Singapore)

Abstract

This paper uses daily returns on dual listed stocks traded on the Stock Exchange of Singapore (SES) to test the information-based hypothesis proposed by Longin [16]. The hypothesis is that the rate of information absorption in the conditional variance is faster for foreign shares (open to foreigners and locals) than for local shares (open to locals only). We test this hypothesis using a bivariate GARCH(1,1) model for 9 dual listed stocks over the period 1991–1996. The evidence indicates that the rate of information absorption is consistent with Longin's conjecture that the rate of information absorption varies inversely with the number of informed traders. The results also support previous U.S. evidence by Conrad, Gultekin and Kaul [7]. Our study suggests that in markets with foreign ownership restrictions, removing those restrictions is likely to improve both market efficiency and liquidity.

Suggested Citation

  • Wai Mun Fong & Pheng Lui Chng, 2000. "On The Rate Of Information Absorption In The Conditional Variance Of Ses Dual Listed Stocks," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 205-217.
    • Handle: RePEc:wsi:ijtafx:v:03:y:2000:i:02:n:s0219024900000103
    DOI: 10.1142/S0219024900000103
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