Characterization of the Price Behaviour of International Dual Stocks: An Error Correction Approach

This paper deals with the interrelations between stocks listed and traded in two international unsynchronized markets. The data exhibits first order nonstationarity and the series across markets are cointegrated. This gives a justification for an error correction model which incorporates a short run adjustment mechanism. The model is applied for different day-groups. The main findings are: (1) The domestic country emerges as the dominant market and the foreign market as the satellite one; (2) The adjustment mechanism coefficient is highly significant for most shares; (3) Different behavioural patterns emerge for middle-of-the-week days as compared with beginning/end-of- week days; (4) The model fits better for the more heavily traded shares.