Volatility links between the home and the host market for U.K. dual-listed stocks on U.S. markets

Abstract

We investigate how idiosyncratic and systematic effects impact the volatility risk of U.K. cross-listed stocks. Under the hypothesis that more stock followers enhance information effects on volatility, we examine whether variation in volatility of a cross-listed stock has in a bivariate setting two edges. We establish a two-dimensional volatility variation of different magnitudes for U.K. cross-listed stocks. Specifically, we find that idiosyncratic effects induce volatility reversal, whereas systematic effects induce volatility continuation. Our findings imply that the volatility risk of a cross-listed stock is an integral of intermarket volatility effects.