Short and Long Run Relationship Analysis of Indian Stocks Cross Listed in U.S

S. Visalakshmi^1, and P. Lakshmi¹

¹Department of Management Studies, National Institute of Technology, Tiruchirapalli, India

Cite this paper:
S. Visalakshmi and P. Lakshmi. Short and Long Run Relationship Analysis of Indian Stocks Cross Listed in U.S. Journal of Finance and Accounting. 2013; 1(2):67-72. doi: 10.12691/jfa-1-2-5

Abstract

This study investigates the short run and long run relationship of returns for cross listed stocks on two non-synchronous international markets using daily data for the period from Jan 2001 to May 2012. Further, the co-movements of prices and causal relationships on ADRs of Indian stocks pertaining to telecommunication sector cross listed in the US markets is examined by applying Cointegration test, Granger causality testand Vector Error Correction Model. Results indicate that in the long run, domestic stock price series and ADR prices are cointegrated. In the short run, error correction coefficients of ADR opening prices and closing prices are statistically significant. But there persists a weak short run relationship in the domestic stock opening and closing price. Due to the weak relationship in the domestic stock opening and closing price, multimarket listing generates opportunities for arbitrage. As a result of this, the pace of global market integration gets reduced in developing markets like India due to information asymmetry.

Keywords:
cross listing short run relationship long run relationship VECM ADR NYSE NIFTY

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