سرعت همگرایی با کارایی بازار سهام خارجی NYSE

This paper contributes to the cross-listing literature by documenting the speed of convergence to market efficiency for foreign stocks listed on the NYSE. We find that, on average, it takes 30–60 minutes for a foreign stock to achieve market efficiency. For a comparable US stock, it takes only 10–15 minutes. The significant difference between foreign and US stocks remains robust when the speed is measured by the number of transactions rather than in calendar time. After relevant firm characteristics are controlled for, the time that it takes for foreign stocks to reach efficiency is significantly negatively related to the quality of their home country institutions. We find that one possible channel through which institutions affect the speed is through their impact on information asymmetry.

In addition to listing on a domestic exchange, a firm may choose to cross-list its shares on a foreign stock exchange. The NYSE is one of the most important listing destinations for foreign firms. At the end of 2005, the number of foreign stocks listed on the NYSE reached 453, a 472% increase from 96 in 1990. During the same period, the number of domestic listings on the NYSE only increased by 34%. Foreign firms accounted for about 17% of all NYSE-listed companies and their market capitalization represented approximately 37% of the total market capitalization of all NYSE companies at the end of 2005.1 Given the increasing importance of foreign stocks on the NYSE, our first motivation in this study is to seek to contribute to the cross-listing literature by providing evidence on the speed of convergence to market efficiency for foreign stocks traded on the NYSE. Efficient stock prices are vital to economic growth, because stock prices provide investors with signals of investment opportunities. Efficient stock prices enable investors to distinguish between good investments and bad ones through a mechanism like Tobin’s Q (Wurgler, 2000). Consequently, allocation of capital to the most efficient uses is accomplished through efficient stock prices, which in turn contributes to economic growth. The growth in cross-listings motivates a vast amount of literature on cross-listings (see Karolyi, 2006 for a survey).2 Among all the studies, to the best of our knowledge, only two papers study the efficiency of ADRs.3Rosenthal (1983) conducts serial correlation and runs tests on weekly, biweekly, and monthly returns for 54 ADRs over the period from 1974 through 1978. The results are consistent with weak-form efficiency. Webster (1998) studies the market efficiency of three ADRs using the Dickey–Fuller unit-root test and daily stock prices. The results show that the market for these ADRs is efficient over the daily horizon. Given the finding that the ADR market is efficient over the daily horizon, a natural question to ask is how fast the ADR market becomes efficient within a day. The answer to this important question requires an intraday analysis using high-frequency data. Rosenthal, 1983 and Webster, 1998 use daily or lower-frequency data and are therefore silent on this issue. The growing presence of foreign stocks on the NYSE and the essential role of efficient prices in capital allocation and economic growth demand an answer. This paper contributes to the existing literature by filling this gap. Following Chordia et al. (2005), we use the short-horizon return predictability from past returns and order imbalances to gauge the degree of efficiency. We analyze intraday data on a sample of 320 foreign stocks listed on the NYSE, whose detailed information is presented in Panel A of Table 1, and find that, on average, it takes more than 30, but less than 60, minutes for them to reach efficiency.

In this paper, we document the speed of convergence to market efficiency for foreign stocks listed on the NYSE. We find that, on average, it takes between 30 and 60 min for a foreign stock to achieve market efficiency. For a comparable US stock listed on the same exchange, it takes only 10 to 15 min. The significant difference in the speed between foreign and US stocks remains robust whether the speed is measured in calendar time or by the number of transactions. We try to identify the factors affecting the speed. After the relevant firm characteristics are controlled for, we find that macro-level country institutions affect the micro-level speed of convergence to efficiency. In particular, stocks of foreign firms operating in countries with better legal, judicial, political, accounting, or corporate governance institutions or in closer geographical or cultural proximity to the US take significantly less time to converge to market efficiency. We then investigate the mechanism through which institutions affect the speed. We find that a possible channel is through the country institutions’ impact on the degree of information asymmetry of firms operating in that country. Specifically, stocks of firms originating from countries with lower institutional quality pose higher information asymmetry. Facing the greater adverse selection risk, NYSE specialists and arbitrageurs are less willing to participate in the trading of such stocks, which results in slower speed of convergence to efficiency. Our findings have important implications for various parties in the capital market. For foreign firms considering a listing in the US, the cross-listing may enable them to break down some investment barriers to US investors, for example, unreliable settlement and custody services, costly currency conversions, or restrictions on investments in stocks traded outside of the US. However, our findings suggest that a US cross-listing may not be very successful in overcoming other important barriers, i.e., the informational barrier resulting from differences in country institutions or geographical and cultural distance. Reese and Weisbach (2002) study the equity offerings made by foreign firms after their stocks are cross-listed in the US. They find that equity issues following a US cross-listing tend to be in the US for firms from countries with strong investor protection and outside the US for firms from countries with weak protection. Given the fact that, all else being equal, firms would issue equity in a market with lower information asymmetry, Reese and Weisbach (2002) provides corroborating evidence that a US cross-listing may not overcome the informational barrier. Foreign issuers should take this into account when they conduct the cost-benefit analysis for a possible US cross-listing. This study also has implications for regulators and policy makers. As more and more firms are seeking access to capital inside and outside of their home country, major stock exchanges around the world are competing to attract new foreign listings. A strand of literature argues that foreign firms, especially those from countries with poor institutions, can “rent” the better US institutions through a US cross-listing (Doidge et al., 2004), and the ability to provide their investors with the same legal protection and disclosure as US domestic firms do is an important driver of a US listing. However, our results suggest that foreign stocks cross-listed in the US are still significantly affected by their home country institutions. They are not perceived as equivalent to US domestic stocks, at least in terms of institutions. One possible explanation is that US regulators have not effectively enforced the law against cross-listed foreign firms (Siegel, 2005). Therefore, more effective enforcement of securities laws against foreign firms may maintain or increase the attractiveness of a US cross-listing. Finally, our findings suggest that measures reducing the information asymmetry of foreign stocks, facilitating the informational linkage between foreign countries and the US, or improving the macro-level institutional quality in foreign countries are likely to improve the efficiency of markets for foreign stocks traded in the US.