Impact of arbitrage on European financial market integration
Part of : Αρχείον οικονομικής ιστορίας ; Vol.XVIII, No.2, 2006, pages 129-154
Issue:
Pages:
129-154
Abstract:
This paper examines the integration process for the difference between the prices of the siamese twin stocks of ABB/ASEA and Royal Dutch/Shell that cross-listed in Europe. A primary focus of this study is to examine the spillover effects (noise) for the difference between prices of the above siamese twin equities with the relevant foreign stock market indices on which these are traded. We investigate the relationship between spillover effects (noise) and arbitrage opportunities arising from daily stock price difference between the prices of twin equities that cross-listed in different European stock markets. The performance of the stock price difference of the examined siamese twin equities is compared with the relevant stock market indices to investigate the impact of price gap (arbitrage) on stock market integration. Overall, we find that arbitrage has a significant impact on spillovers (noise).
Subject:
Subject (LC):
Keywords:
Arbitrage, cross listings, integration, GARCH
Notes:
JEL classification: G15
