An investigation of intraday price discovery in cross-listed emerging market equities

This paper studies the dynamics of price discovery for cross-listed emerging market equities. We use two-year intraday transaction data for a sample of four Egyptian stocks cross-listed on the London Stock Exchange as global depository receipts (GDRs) and ten Argentinean stocks cross-listed on US exchanges as American depository receipts (ADRs) to assess the contribution of the local versus international exchanges to price discovery. The Gonzalo and Granger common long-memory error estimation approach is used. We observe that the local market is dominant for Egyptian equity in terms of price discovery and accounts for 75.8% of price discovery of GDRs. However, the result is mixed for Argentinean equity with an average of only 41.67% of ADR prices determined in the local market, revealing the dominant role of the international market in the price discovery process. Further analysis shows that the share of the local and international market in price discovery is dynamic and evolves over time. Using panel regressions, we find that a larger share of price discovery for the international exchange is explained by a greater liquidity and trading volume of the depository receipt relative to the local stock and the size of the company.