Estimation of global systematic risk for securities listed in multiple markets

Author： Ghai Gauri L. De Boyrie Maria E. Hamid Shahid Prakash Arun J.

ISSN： 1466-4364

Source： The European Journal of Finance, Vol.7, Iss.2, 2001-06, pp. : 117-130

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Abstract

In this era of rapid globalization of financial markets there has been a substantial increase in cross-listings of stocks in foreign and regional capital markets. As many as a third to a half of the stocks in some major exchanges are foreign listed. The multiple listings of stocks has major implications for the concept of systematic risk. This paper demonstrates that the estimator for systematic risk and the methodology itself changes when stocks are listed in multiple markets. The paper suggests general procedures, using maximum information from the multiple markets, to obtain the estimator of beta under a variety of assumptions about the error terms of the market models in the different capital markets. The assumptions pertain both to the volatilities of the abnormal returns in each market, and to the relationship between the markets.