Crossing the Tasman: determinants of price discovery for Australia-New Zealand cross-listed shares
Price discovery is the process by which markets incorporate new information. In this study, we investigate the price discovery for 19 stocks cross-listed on the NZX and the ASX between 1998 and 2012. We observe strong downward trends in the contribution to price discovery of the NZX, both for New Zealand firms cross-listing on the ASX, and Australian firms cross-listing on the NZX. This suggests that the competitiveness of the NZX relative to the ASX is decreasing. Towards the end of the sample period, 50% of the price discovery for New Zealand firms takes place on the ASX, and the NZX acts as a satellite market for Australian firms. We further examine the driving factors behind this decline, such as spreads, and trading and quoting activity.