The Journal of Finance

Why Do Markets Move Together? An Investigation of U.S.‐Japan Stock Return Comovements

Published: 07/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb02713.x

G. ANDREW KAROLYI, RENÉ M. STULZ

This article explores the fundamental factors that affect cross‐country stock return correlations. Using transactions data from 1988 to 1992, we construct overnight and intraday returns for a portfolio of Japanese stocks using their NYSE‐traded American Depository Receipts (ADRs) and a matched‐sample portfolio of U. S. stocks. We find that U. S. macroeconomic announcements, shocks to the Yen/Dollar foreign exchange rate and Treasury bill returns, and industry effects have no measurable influence on U.S. and Japanese return correlations. However, large shocks to broad‐based market indices (Nikkei Stock Average and Standard and Poor's 500 Stock Index) positively impact both the magnitude and persistence of the return correlations.

Regulatory Arbitrage and Cross‐Border Bank Acquisitions

Published: 03/05/2015   |   DOI: 10.1111/jofi.12262

G. ANDREW KAROLYI, ALVARO G. TABOADA

We study how differences in bank regulation influence cross‐border bank acquisition flows and share price reactions to cross‐border deal announcements. Using a sample of 7,297 domestic and 916 majority cross‐border deals announced between 1995 and 2012, we find evidence of a form of “regulatory arbitrage” whereby acquisition flows involve acquirers from countries with stronger regulations than their targets. Target and aggregate abnormal returns around deal announcements are positive and larger when acquirers come from more restrictive bank regulatory environments. We interpret this evidence as more consistent with a benign form of regulatory arbitrage than a potentially destructive one.

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00134

Stephen R. Foerster, G. Andrew Karolyi

Non‐U.S. firms cross‐listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton's (1987) investor recognition hypothesis.

Multimarket Trading and Liquidity: Theory and Evidence

Published: 09/04/2007   |   DOI: 10.1111/j.1540-6261.2007.01272.x

SHMUEL BARUCH, G. ANDREW KAROLYI, MICHAEL L. LEMMON

We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross‐listed stocks. The model predicts that the trading volume of a cross‐listed stock is proportionally higher on the exchange in which the cross‐listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non‐U.S. stocks cross‐listed on major U.S. exchanges.

Why Do Foreign Firms Leave U.S. Equity Markets?

Published: 07/15/2010   |   DOI: 10.1111/j.1540-6261.2010.01577.x

CRAIG DOIDGE, G. ANDREW KAROLYI, RENÉ M. STULZ

Foreign firms terminate their Securities and Exchange Commission registration in the aftermath of the Sarbanes–Oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. Deregistering firms’ insiders benefit from greater discretion to consume private benefits without having to raise higher cost funds. Foreign firms with more agency problems have worse stock‐price reactions to the adoption of Rule 12h‐6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock‐price reactions to deregistration announcements are negative, but less so under Rule 12h‐6, and more so for firms that raise fewer funds externally.

An Empirical Comparison of Alternative Models of the Short‐Term Interest Rate

Published: 07/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04011.x

K. C. CHAN, G. ANDREW KAROLYI, FRANCIS A. LONGSTAFF, ANTHONY B. SANDERS

We estimate and compare a variety of continuous‐time models of the short‐term riskless rate using the Generalized Method of Moments. We find that the most successful models in capturing the dynamics of the short‐term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well‐known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility. We show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk.

Private Benefits of Control, Ownership, and the Cross‐listing Decision

Published: 01/23/2009   |   DOI: 10.1111/j.1540-6261.2008.01438.x

CRAIG DOIDGE, G. ANDREW KAROLYI, KARL V. LINS, DARIUS P. MILLER, RENÉ M. STULZ

This paper investigates how a foreign firm's decision to cross‐list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to cross‐list in the United States because of constraints on the consumption of private benefits resulting from such listings. Using several proxies for private benefits related to the control and cash flow ownership rights of controlling shareholders, we find support for this hypothesis with a sample of more than 4,000 firms from 31 countries.