Lost in Translation: Which Stock Prices Bear the Burden to Adjust to Exchange Rates?

54 Pages Posted: 31 Oct 2015 Last revised: 16 Oct 2019

See all articles by Jimmy Lockwood

Jimmy Lockwood

Southern Illinois University - Department of Finance

Larry J. Lockwood

Texas Christian University

Sie Ting Lau

Nanyang Technological University (NTU) - Division of Banking & Finance

Date Written: March 9, 2015

Abstract

We examine the role of competing exchanges to restore price parity following currency shocks during 2008, a year characterized by dramatic currency volatility. Burdens on the NYSE and home market to restore price parity for cross-listed stocks are more dynamic than previously thought. Adjustments in NYSE prices are not uniform across stocks, are often less than home market adjustments, and are strongly influenced by differences in order execution quality. We quantify the effect of currency shocks using a three-system error correction model, and show that currency shocks exert independent and profound effects as prices gravitate to restore price parity.

Keywords: Cross-listing, Price Discovery, Exchange Rates

JEL Classification: G01, G15, G19, G30

Suggested Citation

Lockwood, Jimmy and Lockwood, Larry J. and Lau, Sie Ting, Lost in Translation: Which Stock Prices Bear the Burden to Adjust to Exchange Rates? (March 9, 2015). Journal of Financial Research, Vol. 36, No. 3, 2016, Available at SSRN: https://ssrn.com/abstract=2683634 or http://dx.doi.org/10.2139/ssrn.2683634

Jimmy Lockwood (Contact Author)

Southern Illinois University - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States
682.305.6095 (Phone)

HOME PAGE: http://https://business.siu.edu/people/finance/lockwood.html

Larry J. Lockwood

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-921-7420 (Phone)
817-921-7227 (Fax)

Sie Ting Lau

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore
65 790 6051 (Phone)
65 791 3697 (Fax)

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