TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Dabora,Emil
TI  - How are Stock Prices Affected by the Location of Trade?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6572
PY  - 1998
Y2  - May 1998
UR  - http://www.nber.org/papers/w6572
L1  - http://www.nber.org/papers/w6572.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu
AB  - 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.
ER  -