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Title:International equity markets and market microstructure
Author(s):Kim, Kyung-Won
Doctoral Committee Chair(s):Finnerty, Joseph E.
Department / Program:Finance
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Finance
Abstract:If the international equity market is integrated, identical stocks listed on different international stock exchanges should have the same rates of return, the same characteristics of stock price behavior and similar distributions of daily rates of return.
This study hypothesizes that different trade clearing and settlement procedures may cause differences in the daily rates of return and their distributions for the same stocks. This is due to the different cash flow delays in the settlement procedures. This study also hypothesizes that different market microstructures, or trading mechanisms, may cause differences in characteristics of stock price behavior, which can affect different rates of return because of different liquidity risk for the same stocks between markets.
The sample companies included in this study focus on the same United States stocks which are traded on the New York Stock Exchange, the Tokyo Stock Exchange and The London Stock Exchange. They have different trading mechanisms and market microstructures.
Even though there exists some empirical evidence which confirms the existence of the settlement effect between markets, the hypothesis related to the settlement procedure cannot be supported. In general, daily rates of return related to settlement procedures are not statistically different between markets. However, different settlement procedures and trading volume have a significant effect on the characteristics of return distributions.
Trading mechanisms have an effect on the characteristics of stock price behavior. However, liquidity risk factors related to market microstructure do not have a significant effect on the rate of return differences between markets. Thus, it is concluded that trading mechanisms or market microstructures do not have a significant effect on the interpretation of the international equity market integration studies.
Issue Date:1994
Rights Information:Copyright 1994 Kim, Kyung-Won
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9416383
OCLC Identifier:(UMI)AAI9416383

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