ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Stock Market Integration and Dually Listed Stocks

In search of the micro-foundation of the commonly held view of a dominant Nasdaq and satellite Bombay Stock Exchange (BSE), the study looks into the price interdependence of 10 Indian companies, which have floated American Depository Receipts (ADRs). The strong correlation between the prices of the dually listed stocks is corroborated by the finding of a bidirectional causality in a vector auto regression model. The competing domestic stock exchange, viz, National Stock Exchange (NSE) too is found to share the same bidirectional relation scripwise with the Nasdaq/New York Stock Exchange. Furthermore, the impulse responses pattern indicates that a positive shock in the domestic (international) price of a scrip gets transmitted in terms of a strong positive movement in the international (domestic) price the very next day. Thus, the quotes of both the markets share not only a stockwise bidirectional causality, but markets also are efficient in processing and incorporating the pricing information.

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