How smooth is price discovery? Evidence from cross-listed stock trading

Haiqiang Chen, Paul Moon Sub Choi, Yongmiao Hong

Research output: Contribution to journalArticlepeer-review

23 Scopus citations


The adjustment to parity can be nonlinear for a cross-listed pair: Convergence may be quicker when the price deviation is sufficiently profitable. We propose a threshold error correction model (ECM) to gauge the market-respective information shares of Canadian listings traded on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). Since dynamics may alternatively be gradual, we further generalize the threshold framework to a smooth transition ECM. The empirical implications are as follows: First, the TSX and the NYSE appear to have integrated over time. Second, parity-convergence accelerates upon discounts on the cross-listings on the NYSE. Third, we find a larger feedback from the NYSE if the price gap exceeds the threshold (required arbitrage return). Fourth, informed traders tend to cluster on the NYSE upon discounts on the cross-listings. Fifth, information share and threshold are affected by the relative degree of private information, market friction and liquidity measures, firm-level characteristics, and aggregate risks.

Original languageEnglish
Pages (from-to)668-699
Number of pages32
JournalJournal of International Money and Finance
Issue number1
StatePublished - 2013

Bibliographical note

Funding Information:
Chen appreciates the financial support from the Ministry of Education Key Laboratory of Econometrics and the Fujian Provincial Key Laboratory of Statistical Sciences at Xiamen University. Choi is grateful for the Ewha Womens University research grant, and Kwanjeong Educational Foundation grants 03112BUS044 and 0422USD012. Special thanks are due to Warren B. Bailey, G. Andrew Karolyi, Maureen O'Hara. We would also like to thank Jinho Byun, Michael Chng, Joung Hwa Choi, Cheol Eun, Willoe Freeman, Stefan Frey, Jinho Kim, Yihui Lan, Gianluca Mattrocci, Lars Norden, Alexei Orlov, Kyung-Hee Park, Jung Soon Shin, Jungwon Suh, Yafeng Qin, Byung Sam Yoo and the participants of INFINITI 2010 (Dublin, Ireland), Asian Finance Association 2010 (Hong Kong), Securities and Financial Markets 2011 (Kaohsiung, Taiwan), Australian Finance and Banking Conference 2011 (Sydney, Australia), European Financial Management Association 2012 (Barcelona, Spain), World Finance Conference 2012 (Rio de Janeiro, Brazil), and American Economic Association 2013 (San Diego, California) for invaluable discussion and feedback. This paper previously circulated under the title: “Price discovery and threshold cointegration: Theory and empirics on cross-border stock trading.” Standard disclaimer rules apply and all errors are our own. Standard disclaimer rules apply and all errors are our own.


  • Information share
  • Price discovery
  • Smooth transition error correction model
  • Threshold error correction model


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