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

The purpose of this study was to investigate dominant-satellite relationships of dually listed stocks. It deals with the interrelations between stocks listed and traded in two international unsynchronized markets. The data exhibit first order non-stationarity and the series across markets are cointegrated. This gives a justification for an error correction model which incorporates a short-run adjustment mechanism. The model is applied for different day-groups. The main findings are: (1) arbitrage opportunities are generally not available; (2) the domestic country usually emerges as the dominant market and the foreign market as the satellite one; (3) the adjustment mechanism coefficient is highly significant for most shares; (4) different behavioral patterns emerge for middle-of-the-week days as compared with beginning/end-of-week days; and (5) the model fits better for the more heavily traded shares.