Asset Pricing and Dual Listing on Foreign Capital Markets: A Note

Asset Pricing and Dual Listing on Foreign Capital Markets: A Note FI~A~CE • VOL. XLII. NO. I • MARCH 1987 Asset Pricing and Dual Listing on Foreign Capital Markets: A Note GORDON J. ALEXANDER, CHEOL S. EUN, and S. JANAKIRAMANAN* INTERNATIONAL CAPITAL FLOWS CAN be hampered by a variety of barriers such as transaction costs, information costs, and legal restrictions. These barriers can be severe enough to produce segmentation of capital markets along national borders, thereby producing incentives for firms to adopt financial policies that can effectively reduce the associated negative effects. According to Stapleton and Subrahmanyam [6, p. 313], dual listing of the firm's securities on foreign capital markets is one such policy.' However, adoption of this policy will bring forth asset-pricing adjustments. The purpose of this note is to provide and analyze a closed-form solution to the equilibrium asset-pricing problem that arises in this situation." Once the solution is obtained, comparative statics are provided," The model presented assumes that one of the domestic securities is dually listed on a foreign capital market, while none of the foreign securities is dually listed on the domestic capital market. This scenario often characterizes the initial stages of capital market integration, in which a country with relatively scarce capital or a http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Asset Pricing and Dual Listing on Foreign Capital Markets: A Note

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Publisher
Wiley
Copyright
1987 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1987.tb02556.x
Publisher site
See Article on Publisher Site

Abstract

FI~A~CE • VOL. XLII. NO. I • MARCH 1987 Asset Pricing and Dual Listing on Foreign Capital Markets: A Note GORDON J. ALEXANDER, CHEOL S. EUN, and S. JANAKIRAMANAN* INTERNATIONAL CAPITAL FLOWS CAN be hampered by a variety of barriers such as transaction costs, information costs, and legal restrictions. These barriers can be severe enough to produce segmentation of capital markets along national borders, thereby producing incentives for firms to adopt financial policies that can effectively reduce the associated negative effects. According to Stapleton and Subrahmanyam [6, p. 313], dual listing of the firm's securities on foreign capital markets is one such policy.' However, adoption of this policy will bring forth asset-pricing adjustments. The purpose of this note is to provide and analyze a closed-form solution to the equilibrium asset-pricing problem that arises in this situation." Once the solution is obtained, comparative statics are provided," The model presented assumes that one of the domestic securities is dually listed on a foreign capital market, while none of the foreign securities is dually listed on the domestic capital market. This scenario often characterizes the initial stages of capital market integration, in which a country with relatively scarce capital or a

Journal

The Journal of FinanceWiley

Published: Mar 1, 1987

References

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