Macroeconomic News Announcements and Price Discovery: Evidence from Canadian-U.S. Cross-Listed Firms

Abstract

This study employs macroeconomic news announcements as proxy for new information arrivals and examines their impact on price discovery of Canadian cross-listed stocks. We compare the price discovery of 38 Canadian companies listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE) for the period 2004-2011. First, we observe that price discovery shifts significantly during macroeconomic news announcement days. Second, the U.S. market becomes more important in terms of price discovery, regardless of the origin of the news. Third, we examine the relation between price discovery and market microstructure variables. After controlling for liquidity shocks, we find that the impact of news announcements still persists. Intraday analyses of price discovery on periods surrounding news releases further support these findings. These results suggest that there is a difference in information-processing capability of the two markets, with the U.S. market being better at processing information than the Canadian market during macro-economic news announcements. Our results are consistent with the literature which shows that cross-listing in the U.S. is positively associated with an improvement in the stock price information environment.

Keywords: Market Microstructure, Price Discovery, Macroeconomic News Announcements, Cross-listed Stocks

JEL Classification: C32, C58, E44