The price formation of substitute markets: Theory and empirical application
Two related issues are seldom jointly addressed in the cross market price discovery literature: i) a model that focuses on non-price parameters ii) the relevance of price and non-price parameters. We have two objectives. First, derive a joint trade direction model (JTDM) based on the single market Madhavan, Richardson and Roomans (1997) model. Second, estimate and test the JTDM against the Gonzalo and Granger (1995) VECM measure of price discovery. By doing so, we test the relevance of quote change against trade direction in cross-market price formation. The estimation of a comprehensive sample of 20 Chinese twin-board firms reveal i) VECM and JTDM give consistent ranking in 6 firms, with 3 firms providing strong evidence of price discovery by the H-board; ii) When Wald test and J-test support VECM (JTDM) as the preferred model for 3 firms, the VECM (JTDM) ranks the B/H (A) board above the A (B/H) board; iii) The models generate conflicting rankings in 8 out of 10 A-B firms. Wald and J tests fail to distinguish between VECM and JTDM for 7 of those 8 firms. This is not surprising given the A and B boards were implicitly merged in 2001-2002.
price discovery trade direction cross-listings
Michael T. Chng Aihua Xia
Department of Accounting and Finance, Monash University, VIC 3800, Australia Department of Mathematics and Statistics, University of Melbourne, VIC 3010, Australia
国际会议
成都
英文
1-54
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）