The impact of international listings on return and risk implications for capital market integration

Abstract

This study examines the effect of international listings on the stock price and risk and the controversial issue of whether the international listings make a contribution to reducing market segmentation. Using a sample of NYSE stocks listed on Tokyo Stock Exchange, we test the issues for the periods during the segmentation (before December 1980) and during the integration (after December 1980). Contrary to our expectations and the previous findings, Tokyo listing does not have a positive effect on the stock price and has a more negative effect during segmentation period than during integration period. Testing various risk characteristics in the pre- and post- listing periods does not support the generally presumed hypotheses but rather support the second part of Howe and Madura(l990)'s joint argument; listing could be an ineffective mechanism for reducing segmentation, even if markers are segmented. As in Howe and Kelm(1987), the effect of overseas listings on the stock price might depend on the sample stocks and the market conditions such as relative uncertainty or regulations.