Information flow and price discovery dynamics

Non-homogeneous and time-varying information flow that affects the price discovery processes within and across markets is a common occurrence in reality but is often neglected in the literature of price discovery. To analyze such information flow within and across markets, we propose a new strategy with a new dynamic price discovery measure. We use this strategy to test the efficient home market hypothesis and the sector effect hypothesis based on the intraday data of the 115 stocks cross-listed and traded in the Canadian and U.S. stock markets. We find that the Canadian stock market is more efficient in price discovery for the Canadian stocks cross-listed in the U.S. stock market. A higher trading volume in the Canadian market makes price discovery in that market more efficient. The Canadian stock market is more efficient in price discovery for stocks in the basic materials sector but not in the technology and financial sectors. The NYSE Alternext is more efficient for junior stocks while the NASDAQ is more efficient for technology stocks.