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How Are Stock Prices Affected by the Location of Trade

How Are Stock Prices Affected by the Location of Trade

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Price of a stock varies with the location of stock exchange on which it is being traded. This presents a unique feature of the stock prices to look into. This presentation offers some insight.
Price of a stock varies with the location of stock exchange on which it is being traded. This presents a unique feature of the stock prices to look into. This presentation offers some insight.

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Categories:Types, School Work
Published by: Muhammad Saeed Babar on Nov 18, 2009
Copyright:Attribution Non-commercial

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06/16/2011

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 The classical finance paradigm predicts thatan asset’s price is unaffected by its locationof trade.
If international financial markets areperfectly integrated, then a given set of risky cash flows has the same value and riskcharacteristics when its trade isredistributed across markets and investors.
 
We show that the relative price of twin stocks ishighly correlated with the relative stock marketindexes of the countries where the twins’ stocks aretraded most actively.
A similar sort of phenomenon occurs with closed-end country funds, which invest in emergingmarkets but are financed by issuing shares ondeveloped-country markets.
It is well known that the prices of these sharesdiffer from the net asset values of the fundportfolios.
In particular, it appears that closed-end fund shareprices comove most strongly with the stock marketon which they trade, while net asset values comovemost strongly with their local stock markets.

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