A characterization of the price behavior of international dual stocks: an error correction approach

The purpose of this study was to investigate dominant-satellite relationshi ps of dually listed stocks. It deals with the interrelations between stocks listed and traded in two international unsynchronized markets. The data ex hibit first order non-stationarity and the series across markets are cointe grated. This gives a justification for an error correction model which inco rporates a short-run adjustment mechanism. The model is applied for differe nt day-groups. The main findings are: (1) arbitrage opportunities are gener ally not available; (2) the domestic country usually emerges as the dominan t market and the foreign market as the satellite one; (3) the adjustment me chanism coefficient is highly significant for most shares; (4) different be havioral patterns emerge for middle-of-the-week days as compared with begin ning/end-of-week days; and (5) the model fits better for the more heavily t raded shares. (C) 1999 Elsevier Science Ltd. All rights reserved.