The impact of cross-trading on Hong Kong stocks in London

Abstract

As Hong Kong-listed securities receive a great deal of interest from international investors, investors need to monitor or trade the stocks on a 24-hour basis. The trading of Hong Kong stocks in London provides international investors an opportunity to trade the stocks after the Hong Kong market closes. Although mass media release the information in London before the Hong Kong market opens, how can we make use of such information to make our investment decisions? Using London-traded Hong Kong stocks, this dissertation provides a detail analysis on overseas trading. The results show that there is a negative price effect before the fist trading day. The behaviour of market-makers in London generates higher trading volume in Hong Kong. The political risk can also be reduced through London-trading. With the transactions made by international investors and market-makers, the two markets are highly interdependent. Some traders who have private information will trade in the London market before the Hong Kong market opens. Both the bid-ask spreads and returns in London provide indication of market movement in the Hong Kong market on the following day. Therefore, investors are advised to be aware of the information in overseas market before taking positions.

Date of Award	1 Oct 1994
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Yan Leung Stephen CHEUNG (Supervisor)