Faculty of Economics and Business Administration Publications Database

Internationally Cross-Linked Stock Prices During Overlapping Trading Hours: Price Discovery and Exchange Rate Effects

Grammig, Joachim
Melvin, Michael
Volume: 12
Number: 1
Pages: 139 - 164
Month: January
ISSN-Print: 0927-5398
Link External Source: Online Version
Year: 2005
Keywords: International stock markets; Cross-listing; Price discovery
Abstract: We analyze exchange rates along with equity quotes for 3 German firms from New York (NYSE) and Frankfurt (XETRA) during overlapping trading hours to see where price discovery occurs and how stock prices adjust to an exchange rate shock. Findings include: (a) the exchange rate is exogenous with respect to the stock prices; (b) exchange rate innovations are more important in understanding the evolution of NYSE prices than XETRA prices; and (c) most (but not all) of the fundamental or random walk component of firm value is determined in Frankfurt.