Abstract
This study examines the role for the Tokyo and the New York Stock Exchange in price discovery for Japanese shares. The two markets' trading hours do not overlap and the trading volume concentrates in Tokyo. State space model approach is employed to investigate the contribution and the efficiency of price discovery. We find that the size of information incorporated in prices observed at Tokyo is greater than in New York. More than 90% of the information is incorporated during the trading hours in the domestic market. In contrast the speed of incorporating information into prices is faster in New York than in Tokyo. New York takes less than half of what Tokyo takes to incorporate information. Our simulation suggests that the contribution on price discovery by New York Stock Exchange would be non-trivial if the two markets open simultaneously.
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