Cross-Listing and Arbitrage without Overlapping Time

Cross-Listing and Arbitrage without Overlapping Time

Copyright: © 2014 |Pages: 20
DOI: 10.4018/978-1-4666-5047-3.ch006
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Abstract

Chinese firms tend to cross-list in different equity markets. The first wave of studies after the re-establishment of the stock market in the early 1990s indicated that cross-listing practices do not necessarily translate into arbitrage profit. This chapter examines the possibility of arbitrage profits for 14 cross-listed Chinese stocks traded on both their home exchanges (Hong Kong Main Board) and NYSE in the form of ADRs without overlapped trading hours. A simple trading strategy was developed with the consideration of four scenarios. The results indicate that a monthly return from 0.5 percent to 3.8 percent could be obtained using the simple strategy when transaction costs are considered.
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6.2 Chinese Adrs

6.2.1 Time Difference among Different Markets

Obviously, there is no overlapping trading time between Hong Kong and New York, as New York is 12 hours behind the Hong Kong market. The trading hours at Hong Kong Stock Exchange has two sessions. The auction session starts at 9:00 am, and ends at 9:30 am. Continuous trading sessions would be followed up after the auction session, starting from 9:30 am to 4:00 pm. New York Stock Exchange also opens from Monday through Friday 9:30 am to 4:00 pm. Neither of the stock exchanges have lunch breaks.

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