Cross-Border Listing and Price Discovery : Canadian Blue Chips Traded in TSX and NYSE

I extend Yan and Zivot (2007)'s dynamic measure of price discovery based on impulse response functions of structural shocks to a trivariate model with two common trends. To investigate price discovery for 7 Canadian firms cross-border listed in the Toronto Stock Exchange Market (TSX) and the New York Stock Exchange Market (NYSE), I analyze the information role of each country to the efficient foreign exchange rate shock and to the individual firm's fundamental value change. In 5 out of 7 firms, I find that the adjustment to the fundamental component of firm's value comes mainly from home (TSX) market. In the remaining of 2 firms the price discovery takes place equally in both home and foreign (NYSE) markets. To the efficient exchange rate shock, price discovery takes place equally in both markets for 5 out of 7 firms and occurs more in the home market for the rest of 2 firms. Compared to a bivariate setup, the empirical results from the trivariate model are same with those from a bivariate model for YZ's dynamic price discovery measure. However the Information Share (IS) and Component Share (CS) give different results to those of dynamic measure in 3 out of 7 firms. This suggests that conclusions about price discovery depend on the estimation method applied