DP2878 Price Discovery Across the Rhine

Author(s):	Bruno Biais, Isabelle Martinez
Publication Date:	July 2001
Keyword(s):	information assymeteries, international financial markets integration, market microstructure
JEL(s):	F12, F21, F30
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2878

This Paper studies the formation of opening prices for German and French stocks, simultaneously traded in Frankfurt and Paris. We analyse theoretically the case where investors and traders based in the same country as the firm have better information on its value than foreign traders. Our model implies that prices set on the domestic market should be informationally more e±cient than prices set on the foreign market. For German stocks, our empirical results are consistent with theory. The informational e±ciency of French stock prices is comparable in the two markets when the Frankfurt specialist can observe Paris preopening prices before opening the market.