Abstract
Being an instrument for international diversification, the populations of Single listed foreign stocks are growing in major capital markets. Since this is a new trend of foreign listing, both investors and issuers may have concerns about the characteristics of these stocks. This paper focuses on thesetypes of stocks from two different sectors (HealthCare and Technology) which are originated from PRC (Peoples Republic of China) and listed only on the US markets. The sample employs 24 companies’ stock returns in the period of May 2011 to August 2013. Correlation test and Granger causality test are applied to identify the relationships and beyond that, the Bivariate Co-integration test and Impulse Response Function test are applied to identify the nature of the relationships between the stocks and both the home and the US market (Sector Index). The study reveals that these single listed stocks do not have any long term effect from both the Home and the Foreign trading markets whereas, the stocks are highly responsive towards the shocks from US markets in a very short term.
Highlights
Financial markets are the platforms where companies go public to raise equity finance or to sell off or to ‘create a public market in which the founders and other shareholders can convert some of their wealth into cash at a future date’ [1]
There is a tendency that when local market performs badly comparing to foreign markets, investors like to invest in foreign stocks; this can be considered as an opposite reaction of investors to foreign stocks following the signal from the local market
There are a large number of researches that were conducted to identify the dynamics of information flows between dual listed stocks; but there are very few academic research articles which examine the performance of single listed foreign IPOs or stocks
Summary
Financial markets are the platforms where companies go public to raise equity finance or to sell off or to ‘create a public market in which the founders and other shareholders can convert some of their wealth into cash at a future date’ [1] Those who go public for equity finance, look for the opportunity to sell off the shares as quickly as possible and at higher price as possible. Therationale for these companies to raise equity capitalis the advantages of the non-requirement for repayment and the non-mandatory regular payment, as opposite to regular interest payments for debts [2]. Share Issuing costs, exchange rates and local market regulations sometime influence the IPOs, but after flotation on a foreign market only the upcoming information in the market drive the price (according to EMH (Efficient Market Hypothesis))
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