NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How are Stock Prices Affected by the Location of Trade?

Kenneth A. Froot, Emil Dabora

NBER Working Paper No. 6572
Issued in May 1998
NBER Program(s):   AP   CF

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.

download in pdf format
   (1091 K)

email paper

This paper is available as PDF (1091 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6572

Published: Journal of Financial Economics, Vol. 53, no. 2 (August 1999): 189-216. citation courtesy of

Users who downloaded this paper also downloaded these:
Lamont and Thaler w8302 Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs
Shleifer and Vishny w5167 The Limits of Arbitrage
Benartzi and Thaler w4369 Myopic Loss Aversion and the Equity Premium Puzzle
Barberis and Thaler w9222 A Survey of Behavioral Finance
Campbell and Shiller w8221 Valuation Ratios and the Long-Run Stock Market Outlook: An Update
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us