||Co-movements and Arbitrage of Cross-Listed Shares
||Co-movements and Arbitrage of Cross-Listed Shares
||Institute of International Management
||Craig Alan Uyan Carandang
The purpose of this paper is to show that relative price of twin stock prices, also known as cross-listed stocks, are co-move with their trading locations & respective trading volume, and are not correlated with exchange rate movements. This study uses Taiwanese companies listed in three distinct locations: New York, London, and Hong Kong. The results obtained via OLS and Quantile Regression indicate all the companies are affected by its trading locations, violating the law of one price and supporting the notion that international financial markets are not fully integrated with each other. Exchange rates can largely be ignored when valuing cross-listed stocks, while trading volume’s effect is inconclusive. Given the existence of locational arbitrage, a simple arbitrage strategy is formulated to yield average returns ranging from 2% to 18%. This makes it as an attractive investment vehicle worth the time and money for investors, especially arbitrageurs.
TABLE OF CONTENTS
TABLE OF CONTENTS III
LIST OF TABLES VI
LIST OF FIGURES VII
CHAPTER ONE INTRODUCTION 1
1.1 Research Background. 1
1.2 Research Motivation. 1
1.3 Research Objective. 2
1.4 Research Gap. 2
1.5 Study Procedure. 4
CHAPTER TWO LITERATURE REVIEW 6
2.1 Cross-Listed Stocks. 6
2.1.1 Studies on Cross Listings. 6
2.1.2 Depositary Receipts. 12
2.2 Arbitrage. 17
2.3 Co-movements. 19
2.3.1 Time Differences between Markets. 19
2.4 Cross-Border Listing of Taiwanese Firms. 21
CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 22
3.1 Data Sources and Study Period. 22
3.2 Variables. 26
3.3 Model. 26
3.3.1 Ordinary Least Squares and Quantile Regression. 28
3.3.2 Arbitrage Strategies. 30
CHAPTER FOUR RESEARCH RESULTS 32
4.1 Description of Data and Results. 32
4.2 OLS and Quantile Regression Results. 36
4.3 Hypothesis Testing Summary. 53
4.4 Locational Arbitrage Strategy. 57
CHAPTER FIVE CONCLUSION AND SUGGESTIONS 61
5.1 Conclusion. 61
5.2 Managerial Implications. 64
5.3 Limitations and Direction for Future Research. 65
Appendix 1: Advanced Semiconductor Engineering 71
Appendix 2: AU Optronics 72
Appendix 3: ChipMos 73
Appendix 4: Chunghwa Telecom 74
Appendix 5: Siliconware Precision Industries Co. Ltd 75
Appendix 6: Taiwan Semiconductor 76
Appendix 7: United Microelectronics 77
Appendix 8: Acer 79
Appendix 9: Asia Cement 80
Appendix 10: Cathay Financial 81
Appendix 11: Compal Electronics 82
Appendix 12: Evergreen Marine 83
Appendix 13: Far Eastern 85
Appendix 14: Hon Hai Precision 86
Appendix 15: Lite-On 88
Appendix 16: Shin Kong Financial 89
Appendix 17: Asustek 90
Appendix 18: Good Friend 91
Appendix 19: Ju Teng 93
Appendix 20: Neo-Neon 94
Appendix 21: New Focus 95
Appendix 22: Sandmartin 96
Appendix 23: Solargiga 98
Appendix 24: Tingyi 99
Appendix 25: VMEP 100
Appendix 26: Yorkey 101
Appendix 27: USA 103
Appendix 28: UK 104
Appendix 29: HK 105
Appendix 30: Technology Sector 107
Appendix 31: Non-Technology Sector 108
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