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Trading volume and location of trade: Evidence from Jardine group listings in Hong Kong and Singapore
Journal of Banking & Finance 27 (2003) 1411–1425 www.elsevier.com/locate/econbase
Trading volume and location of trade: Evidence from Jardine group listings in Hong Kong and Singapore Sie Ting Lau b
a,1
, Thomas H. McInish
b,*
a Department of Banking and Finance, Nanyang Technological University, Singapore, Singapore Department of Finance, Insurance and Real Estate, Fogelman College of Business and Economics, The University of Memphis, Memphis, TN 38152, USA
Accepted 11 October 2001
Abstract The switch in primary exchange listing of members of the Jardine Group from Hong Kong to Singapore provides a unique setting in which to examine changes in exchange listings. Previous studies of listing switches from Nasdaq to AMEX/NYSE find increases in liquidity and positive abnormal returns. Clyde et al. (Journal of Finance 52 (1997) 2103) report decreased liquidity and positive abnormal returns associated with switches from AMEX to Nasdaq. In contrast, we find decreased liquidity as measured by trading volume accompanied by negative abnormal returns––demonstrating that expected liquidity increases are not the sole reason for exchange switches and that management may perceive benefits from a switch in listing even if investors do not. Moreover, evidence is accumulating that the increased liquidity observed by previous researches is only associated with switches from smaller to larger markets. In spite of the fact that trading volume declines after the switch, there are still a sufficient number of Hong Kong investors trading in Singapore to cause a statistically significant decline in trading volume in Singapore when there is a holiday in Hong Kong. Hence, order flow is segmented, but not completely. We find that individual firm trading volume is most closely associated with the market on which it is traded most. Ó 2003 Elsevier Science B.V. All rights reserved. JEL classification: G15 Keywords: Volume; Listings; Hong Kong; Singapore
*
Corresponding author. Tel.: +1-901-678-4662; fax: +1-901-678-3006. E-mail addresses: [email protected] (S.T. Lau), [email protected] (T.H. McInish). 1 Tel.: +65-790-4649; fax: +65-791-3697. 0378-4266/03/$ - see front matter Ó 2003 Elsevier Science B.V. All rights reserved. doi:10.1016/S0378-4266(02)00279-0
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1. Introduction In late 1994 and early 1995, five companies associated with the Jardine Group that had historically traded on the Hong Kong Stock Exchange (HKSE), where they accounted for more than 10% of the total market capitalization, switched their primary listing to the Stock Exchange of Singapore (SES). A switch in primary listing from one country to another is unusual. This event is also unusual in that most switches involve moving from a smaller or less prestigious market to a much larger market. But the Hong Kong market is four times as large as the Singapore market. Miller (1999) finds that investorsÕ perception of the benefits of cross-listings is positively correlated with the size of the new market. We believe that investigation of this event provides insights such as the liquidity effects of stock exchange listing changes and the extent of order flow segmentation. The topic of primary listing location choice is growing in importance and there is a trend for firms to have their primary listing outside their home country. Both Pacific Internet and Creative Technology, which are based in Singapore, chose to list on Nasdaq instead of on the Singapore Exchange. Similarly, Chinese companies listing on the NYSE include China Tire and Ek Chor China Motor Cycle. Blass and Yafeh (2001) argue that high quality Israeli firms choose to list initially in the US to signal their quality. There has been considerable interest in how switches in a firmÕs primary listing from one exchange to another affects liquidity. Cowan et al. (1992) postulate that firms choose to list on the NYSE ‘‘when the perceived benefits, including increased liquidity, are greater’’. Baker and Johnson (1990) report that managers view better liquidity as a main reason for choosing a NYSE listing. Christie and Huang (1994) report increased liquidity for stocks that move from the Nasdaq to the NYSE. In contrast, Clyde et al. (1997) are unable to explain their finding that liquidity decreased for stocks that moved from the American Stock Exchange to Nasdaq, but stock excess returns were positive when the switch was announced. We show that the switch in Jardine GroupÕs primary listing resulted in a statistically significant decline in liquidity as measured by trading volume for four of the five Jardine Group firms. 2 But unlike previous cases, we show that investors viewed the decision to switch Jardine Group listings as bad news. Abnormal returns for dates that are associated with the switch are significantly negative, which is consistent with the view that the switch in primary listing adversely affected value. 3 Our results combined with those of Clyde et al. (1997) lead us to conclude that while liquidity benefits may motivate some exchange switches, there have been a number of switches that were not motivated by liquidity.
2
The remaining firm, Oriental, had low trading volume in both markets. The entire market dropped in 1994, but the fall in value of Jardine Group shares was significantly greater that the decline in value of other Hong Kong firms. Jardine investors may have been reacting to fear that real assets remaining in China would be at risk, that liquidity would be lower in Singapore, or to other factors. 3
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Our finding that aggregate trading volume declined following the switch demonstrates that order flow is segmented, but does not indicate whether a significant number of Hong Kong individuals and institutions continue to trade Jardine group stocks in Singapore following the switch. 4 We shed light on this question by analyzing trading in Hong Kong on Singapore holidays prior to the switch and trading in Singapore on Hong Kong holidays following the switch. Prior to the switch, we show that volume in Hong Kong is not significantly lower on days that are holidays in Singapore, but not in Hong Kong. We conclude that Singaporeans were not a significant factor in the trading of Jardine Group shares prior to the switch. Following the switch, trading volume in Singapore fell significantly on days that were holidays in Hong Kong, but not in Singapore. Hence, we conclude that many Hong Kong investors continued to trade Jardine Group shares in Singapore, but many others did not so that, on balance, trading volume declined after the switch. The unwillingness or inability of Hong Kong investors to trade in Singapore was a significant factor in the lower trading volume of Jardine Group members following the switch. Because the Hong Kong market is about four times as large as the Singapore market, new Singapore investors were not able to make up for the decline in trading by Hong Kong investors. 5 The extent to which there is cross-border trading between Hong Kong and Singapore is an empirical question. By comparing the percentage of the worldÕs market capitalization with the percentage of the equity portfolio in domestic equities (in parentheses) for eight major markets, Cooper and Kaplanis (1994) demonstrate that investors prefer to invest in their home markets: France, 2.6 (64.4); Italy, 1.9 (91.0); Japan, 43.7 (86.7); Spain, 1.1 (94.2); Sweden, 0.8 (100.0); UK, 10.3 (78.5); USA, 36.4 (98.0); Germany, 3.2 (75.4). These authors identify a number of reasons that might explain why investors favor domestic portfolios including hedges against domestic inflation risk and non-traded goods, and transactions costs due to withholding taxes, informational disadvantages, restrictions, and differential access to markets. These barriers to cross-boarder portfolio investment collectively lead to home bias, the propensity of domestic investors to overweight domestic and underweight non-domestic assets relative to a value-weight benchmark. Turning to another subject, Werner and Kleidon (1996) investigate British equities that are also traded in the US. These authors argue that on an intraday basis,
4 One referee points out that certain institutional funds may be forced by laws, regulations, company charters and the like, to invest in companies that are listed on certain exchanges. There may be funds that have pension money for people in Hong Kong, and they may only be able to invest in Hong Kong listed securities, or there may be mutual funds that say that they will hold a certain percentage of their assets in companies that trade only on certain exchanges. That would mean that if a company delisted in Hong Kong some of the investor base would have to stop trading in it, while others would continue. We view all of these as helping to explain why order flow segmentation exists. 5 According to the International Finance Corporation, the market capitalization as of the November 1993, which is approximately the time of our study, was 301 billion USD for Hong Kong and 80 billion USD for Singapore.
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if capital markets are integrated, there should be a single intraday U-shaped pattern in volume (McInish and Wood, 1990). Instead, Werner and Kleidon (1996) find that the intraday pattern in volume in New York and London, respectively, is closely related to the volume of non-cross-listed equities in each market. These authors conclude, ‘‘overall, the evidence indicates that order flow for cross-listed securities is segmented’’. 6 Examining the futures market for Japanese government bonds operated in London and Tokyo, Tse (1999) demonstrates that traders have a marked preference for trading in the home market. Further Tse finds that the London market exhibits an intraday U-shaped pattern in volume that is similar to the pattern for other assets traded in the same market. We extend this thinking to the examination of volume by testing the primary market volume correlation hypothesis. This hypothesis states that the volume of trading of a security is significantly correlated with the volume of trading on the market on which it is traded most. We find strong support for this hypothesis. The remainder of this paper is organized into four sections. Section 2 provides background, Section 3 discusses the hypotheses and the data and Section 4 presents the results. Section 5 provides a summary and conclusions.
2. Background Jardine Group is the name commonly used for Jardine Matheson (Matheson), one of the oldest hongs or trading houses in Hong Kong, and its subsidiaries. These subsidiaries are Dairy Farm International Holdings (Farm), Hong Kong Land Holdings (Land), Mandarin Oriental International (Oriental), Jardine Strategic Holdings (Strategic), and Jardine International Motor Holdings (Motor). In the first half of the 1990s Jardine Group management began to have concerns about the regulatory climate in Hong Kong that would exist following the takeover of Hong Kong by the Peoples Republic of China in 1997. Initially, these concerns prompted most Group members to switch their primary listing from the HKSE to the London Stock Exchange (LSE) in 1991. This event resulted in the LSE becoming the chief regulator of the Group members and also made it possible to delist from the HKSE on 30 daysÕ notice and without stockholder approval. Further distancing themselves from Hong Kong, Matheson, Farm and Oriental, and Strategic were listed on the SES in 1991 and Matheson, Farm, Land, and Oriental begin a sponsored program of ADRs in the US. Despite all of these changes, news reports and discussions with dealers indicated that more than 90% of trading was on the HKSE and subsequently
6 Froot and Dabora (1999) demonstrate that returns are correlated with the returns of the market on which they are traded most. Domowitz et al. (1998) find that cross-listing is ‘‘associated with an increase in the variance of public information flows unrelated to the volatility induced by changes in liquidity and trading activity. This is not consistent with market integration’’.
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on the SES. Further, no trading took place in Singapore until the shares were delisted in Hong Kong. 7 Jardine Group management was also concerned about Hong KongÕs takeover regulations and requested an exemption from the Hong Kong government. In 1994 negotiations between the Jardine Group and the Hong Kong government broke down and Jardine Group members (except Motor) announced that they would delist from the HKSE. Following delisting significant trading activity began in Singapore. Table 1 provides a chronology of the events related to the delisting of Jardine Group shares from the HKSE. The delisting of Jardine Group shares from the HKSE and the beginning of active trading on the SES provides an opportunity to examine international equity market integration. Since Singapore and Hong Kong are in similar time zones, if capital markets are fully integrated we expect the HKSE and the SES to be perfect substitutes as trading venues. On the other hand, trading on the LSE takes place outside of normal business hours in Asia and, hence, would not be a good substitute as a trading venue.
3. Hypotheses, methodology, and data 3.1. Data The data for this study were obtained from the PACAP database and comprise the daily price and number of shares traded for each Jardine Group firm from the beginning of 1990 until the end of 1996. We also obtained price and volume data for the Hong Kong and Singapore stock indexes. We compare trading in Hong Kong and Singapore to identify dates that were holidays in one market but not in the other. While the specific identity of each holiday is not important for our analysis, nevertheless, we ascertained the names of these holidays for 1994 and 1995. Table 4 provides a list of these dates and names. The last day of trading on the HKSE was 30 December 1994 for Matheson and Strategic and 31 March 1995 for Farm, Land, and Oriental. All statistical tests are at the 0.01 level. Dates for the chronology of events related to the switch were obtained from Lexis–Nexis and Reuters Morning briefing.
7 According to Bloomberg, the percentage of shares traded in Singapore during 1995 and 1996 (the latter in parentheses) for each firm is as follows: Farm, 99.49 (97.90); Matheson, 99.09 (92.39); Strategic, 98.68 (97.98); Land, 99.94 (99.80); and Oriental, 99.66 (98.79). A number of press reports discussed the switch. According to Lim (1995) ‘‘All the investors in Jardine Matheson and Jardine Strategic Holdings, which delisted from the HKSE at the end of last week, have moved their shareholdings to Singapore, according to group company secretary Neil McNamara. ÔNone has moved to London, nobody has moved to Sydney,Õ he said last Friday. ÔIt looks like Singapore will be the focus of tradingÕ.’’ Hewett (1995) reports that ‘‘Jardine group companies have managed to pull off a controversial secondary listing experiment in Singapore. A head of research at a Hong Kong-based brokerage said: ÔPredictions that the group was going to be left high and dry in Singapore have been proven wrongÕ.’’
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Table 1 Chronology of announcements leading to the delisting of Jardine Group shares from the HKSEa Date
Announcement
29 November 1990
Matheson threatens to delist from HKSE unless the firm is granted exemption from primary securities regulation in Hong Kong. The companyÕs shares are also listed in London and Luxembourg Group may delist from HKSE or switch its primary listings from HKSE to LSE according to rumors reported by news services. Both the Group and the HKSE deny that there is a feud between them The SES grants Matheson, Strategic, Farm, and Oriental permission to list their shares Matheson announces discussions with the government to exempt the firm from Hong KongÕs takeover code and to use London as its primary listing Matheson, Farm, Land, and Oriental begin a sponsored program of ADRs in the US HKSE agrees to allow Matheson to switch to a secondary listing, but not a trading-only listing status, which would have exempted the firm from Hong KongÕs listing and takeover rules. The LSE will become the lead regulator and the firm can delist from the HKSE on 30 daysÕ notice and without shareholder approval HKSE approved the secondary listing for Group Shareholders of Matheson, Farm, Land, Oriental, and Strategic approve LSE and HKSE listing plans A local newspaper reports that talks between Group and the authorities over exemption from Hong KongÕs takeover code have stalled and that Group might retaliate by delisting from HKSE. Group denies that it plans to delist Matheson announces that it will delist from HKSE on December 31, 1994. Strategic will also delist, but other subsidiaries have no immediate plans to delist from HKSE Land says it may delist from HKSE Oriental says it will decide in autumn on whether to delist from HKSE Farm will delist from HKSE effective March 31, 1995 (The next day news reports indicate that Land and Oriental will also delist) Last day of trading on HKSE for Matheson and Strategic Last day of trading on HKSE for Farm, Land and Oriental
10 January 1991
8 February 1991 29 March 1991 24 June 1991 12 December 1991
6 May 1992 4 June 1992 8 March 1994
23 March 1994
31 May 1994 5 July 1994 15 September 1994 30 December 1994 31 March 1995
Notes: 1. Following the listing of shares of Matheson, Farm, Oriental, and Strategic on the SES there was no trading activity in Singapore. Actual trading only began at the time of the delisting from the HKSE. 2. In several cases, announcements were also made on the day following the events listed above. We have not included these announcements in our analysis, because we believe that in most cases the information contained in the second announcement are anticipated by investors. In any event the exclusion of these events does not affect our conclusions. These events are: (a) 24 March 1994: Strategic announces that it will delist from HKSE on 31 December 1994; (b) 1 June 1994: Newspapers report that Farm may delist from HKSE. Motor says it has no plans to delist from HKSE while Oriental says it has no plans to delist until the next board meeting in September; (c) 16 September 1994: Land and Oriental will delist from HKSE on 31 March 1995. a This table lists the chronology of events leading to the dropping of the HKSE listings by members of the Jardine Group. Jardine Group (Group) is the name commonly used for Jardine Matheson (Matheson) and its subsidiaries. These subsidiaries are Hong Kong Land Holdings (Land), Dairy Farm International Holdings (Farm), Jardine Strategic Holdings (Strategic), Mandarin Oriental International (Oriental), and Jardine International Motor Holdings (Motor). On 3 January 1995, Matheson and Strategic dropped their listing on the HKSE. On 1 April 1995, Land, Farm, and Oriental dropped their HKSE listing. Motor did not drop its HKSE listing.
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3.2. Hypotheses and methodology Before beginning our analysis of how the switch affected various aspects of trading volume, we investigate returns for events identified in Table 1 that are connected with the switch in primary exchange listing. If location of trade matters, because the Singapore market is smaller than the Hong Kong market, trading volume is likely to decline. Hence, we expect to observe statistically significant negative returns associated with the switch. For each event day we calculate two-day abnormal returns for the date identified and the following trading day. The abnormal return is the return for the individual company less the return for the Hang Seng index where the latter is adjusted to exclude Jardine Group firms. We calculate standard deviations of twoday returns for the first nine months of 1990 for use with the events in 1990 through 1992 and for the period 1 July 1992 to the end of March 1993 for the remaining events. We calculate t-statistics by dividing the abnormal return for each event date (including the following day) by the appropriate standard error. 8 Next, we investigate how the change in the primary listing from the HKSE to the SES affects the volume of trading. The Hong Kong market is about four times as large as the Singapore market. Hence, in the presence of significant order flow segmentation, we expect the volume of trading to fall substantially following the switch to Singapore. Specifically, we test the following null hypothesis: Hypothesis 1. The number of shares traded on the SES is the same as the number of shares traded on the HKSE. While a rejection of the null hypothesis in favor of a finding of a statistically significant decline in trading volume following the switch demonstrates that order flow is segmented, it does not indicate whether Hong Kong investors continue to trade Jardine Group firms following the switch. We address this question by investigating trading volume on days that are trading holidays in one country, but not in the other. If Singapore (Hong Kong) traders trade actively in Hong Kong (Singapore), then a trading holiday in Singapore (Hong Kong) should significantly affect the volume of trading in Hong Kong (Singapore). The specific hypotheses that we test are: Hypothesis 2. There is no difference in trading volume on the HKSE for shares of Jardine Group firms for days that are and are not trading holidays in Singapore. Hypothesis 3. There is no difference in trading volume on the SES for shares of Jardine Group firms for days that are and are not trading holidays in Hong Kong. If the hypotheses are rejected, we conclude that order flow segmentation is not complete.
8 We replicated the analysis by omitting data for the three months just before and just after the delisting, but we do not report these results because our conclusions were unchanged.
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In addition to examining holidays in general, we investigate whether holidays that might be recognized by individuals in both countries are affecting our results. Our approach is to examine holidays that are likely to be celebrated only in one country, namely QueenÕs Birthday and Liberation Day in Hong Kong and Singapore National Day and Deepavali in Singapore. QueenÕs Birthday honors the birthday of the Queen of England. This holiday is no longer celebrated in Hong Kong since its re-incorporation into China. Liberation Day celebrates victory in World War II. Deepavali is celebrated by Indians to mark the beginning of Indian New Year. Singapore National Day marks the independence of Singapore from Malaysia. We do not present these results below because our results for these holidays are qualitatively the same as for all holidays. Our statistical test for Hypotheses 1–3 proceeds as follows. First, we jointly rank the observations for the two treatments being compared (say, holiday versus nonholiday). Next, we use a t-test to test the hypothesis that the means of the ranks for each treatment are the same. This is equivalent to a Wilcoxon rank sum test. 9 Using transactions data, Werner and Kleidon (1996) offer evidence to support the primary market correlation hypothesis for British equities cross-listed in the US. We extend their work by testing whether this hypothesis holds for firms that switch their primary listing from one country to another. Specifically, we test Hypothesis 4. The volume of trading in a firmÕs stock is correlated with the volume of trading in the market on which it is traded most. We test this hypothesis by estimating the following linear regression: VOLi;t ¼ b0 þ b1 HKVOLt þ b2 SESVOLt þ b3 D1 HKVOLt þ b4 D1 SESVOLt þ et
ð1Þ
where VOLi;t is the number of shares of firm i traded on day t, HKVOLt the number of shares traded on the HKSE on day t, SESVOLt the number of shares traded on the SES on day t, D1 a dummy variable that equals 1 when the firmÕs primary listing was the SES and 0 otherwise, D1 HKVOLt the product of D1 and HKVOL, D1 SESVOLt the product of D1 and SESVOL, and e a random error term. In regression equation (1), the coefficients of HKVOL and SESVOL capture the relationship between the daily volume of trading in the individual firmÕs shares and the volume of trading on each respective exchange in the period before the change in listing. The coefficients of (D1 HKVOL) and (D1 SESVOL) capture the relationship between the volume of trading in the individual firmÕs shares and the volume of trading on each respective exchange after the switch in listing. If the primary market volume correlation hypothesis holds, we expect the coefficients of HKVOL and (D1 SESVOL) to be significantly positive, indicating a strong positive relationship between firm volume and Hong Kong volume in the pre-switch period and between 9 We investigate various approaches to controlling for changes in volume on the HKSE and the SES over the sample period, but we do not report these results because our conclusions were unchanged.
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firm volume and Singapore volume in the post-switch period. We do not have hypotheses concerning the remaining coefficients.
4. Results Table 2 presents the two-day abnormal returns for the day of each event reported in Table 1 and the following trading day. We report two-day returns because we are uncertain whether the announcements reported in Table 1 occurred during trading hours on the day listed below or after the market close. On 8 February 1991, Matheson, Strategic, Farm, and Oriental were granted approval to switch their primary listing from the HKSE to the LSE. The market clearly assessed this as a negative event. The abnormal returns for all members of the Jardine Group were significantly negative on that date. Further, the abnormal returns for all members of the Jardine Group were also significantly negative on 6 May 1992 when the HKSE approved the secondary listing and on 23 March 1994 when Matheson announced its delisting. Investors clearly viewed these events as significant and, in general, reacted negatively to the Jardine GroupÕs delisting from the HKSE. For each member of the Jardine Group, there is a sudden and dramatic shift of trading when each member switches its primary listing to Singapore. Prior to the Table 2 Abnormal returns and t-statistics for event daysa Date
Matheson
Farm
Land
Oriental
Aret
Aret
t-Stat.
Aret t-Stat.
Aret
t-Stat.
Aret
t-Stat.
0.47 0.26 3.58 4.58 0.34 0.18 5.90 0.27 2.34 6.05 2.77 1.45 6.68
2.37 1.29 18.06 23.07 1.69 0.93 29.73 1.33 11.50 29.73 13.62 7.11 32.84
1.48 0.95 1.69 0.54 0.92 1.53 0.40 0.51 0.34 7.17 0.50 0.40 0.37
2.03 1.44 5.20 1.14 1.50 0.24 1.29 1.22 3.58 14.38 1.75 0.98 4.35
10.96 7.76 28.04 6.13 8.08 1.27 6.93 6.19 18.09 72.72 8.83 4.98 22.02
0.79 2.48 5.65 1.01 0.24 4.34 1.29 0.27 5.64 12.98 0.83 0.38 1.89
5.17 16.24 36.92 6.63 1.57 28.38 8.40 1.69 35.32 81.31 5.22 2.36 11.87
t-Stat.
29 November 1990 1.13 7.07 10 January 1991 0.26 1.61 8 February 1991 5.35 33.57 29 March 1991 1.14 7.13 24 June 1991 1.08 6.80 12 December 1991 4.63 29.04 6 May 1992 3.21 20.11 4 June 1992 2.12 10.43 8 March 1994 5.52 27.17 23 March 1994 13.86 68.15 5 July 1994 0.02 0.12 31 May 1994 1.15 5.66 15 September 1994 0.51 2.50
12.10 7.79 13.82 4.41 7.53 12.51 3.30 3.27 2.20 46.09 3.24 2.57 2.36
Strategic
Significant at the 0.01 level. a This table presents the two-day abnormal returns for the day of each event reported in Table 1 (through 15 September 1994) and the following trading day. We calculate abnormal returns by subtracting the holding period returns for the Hang Seng Index, excluding Jardine Group firms. We report two-day abnormal returns because we are uncertain whether the announcements listed in Table 1 occurred during trading hours on the day listed below or after the market close. For each firm, we calculate the standard deviation of two-day abnormal returns for the first nine months of 1990 for use with the events for 1990–92 and for 1 July 1992 to the end of March 1993 for use with the 1994 events. Using these standard deviations, we calculate t-statistics for each event day.
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Table 3 Mean number of shares traded on the HKSE and the SESa Company Matheson Strategic Farm Land Oriental
Mean number of shares per day (in millions) Singapore
Hong Kong
t-Statistics
0.919 0.933 1.766 3.322 0.660
1.490 1.318 2.409 5.371 0.627
6.56 6.38 6.48 10.92 0.56
Significant at the 0.01 level. a We present the mean number of shares traded on the HKSE and on the SES. For each firm we use data for one year before and after delisting in Hong Kong. Then, for each firm, we rank the number of shares traded on each day over all days and perform a t-test on the mean of the ranks for each exchange. This is equivalent to a Wilcoxon rank sum test.
switch there was no trading in Singapore even though the firms had a listing on the SES. Following the switch, trading in Hong Kong ceased and there was a dramatic jump in trading in Singapore. As we showed earlier, almost all of the worldwide trading took place in Singapore following the switch in listing. There was very little trading of Jardine Group shares outside of Hong Kong prior to the switch and outside of Singapore following the switch. Table 3 shows that for each Jardine Group member trading volume was significantly lower (at the 0.01 level) on the SES than on the HKSE, except for Oriental. The ratio of SES volume to HKSE volume was as follows: Matheson (0.804), Strategic (0.7079), Farm (0.7330), Land (0.6185), and Oriental (0.10526). Hence, on balance we reject Hypothesis 1. Our results contrast to those of previous researchers (Cowan et al., 1992; Baker and Johnson, 1990; Christie and Huang, 1994) who report increased liquidity following switches in exchange listings. As we indicated earlier, Clyde et al. (1997) are puzzled by their finding that for stocks that moved from the AMEX to Nasdaq, liquidity decreased, but stock excess returns were positive. Our finding of a significant decline in liquidity for four of the five Jardine Group firms accompanied by significantly negative abnormal returns seems more reasonable. Since liquidity has value, the decline in liquidity resulting from the switch predictably lowers firm value. Of course, we cannot rule out the possibility that other explanations such as investor fears concerning the assets of the firms remaining in Hong Kong also contributed to the decline in value. Our results offer their own puzzle. Why did Jardine management proceed with the switch even though it resulted in a decline in firm value? While a complete investigation of this question is outside the scope of our paper, we offer several possible explanations, though we do not claim to be exhaustive. The controlling shareholders, not contemplating the sale of the shares, may have decided to simply ignore the liquidity preferences of other shareholders. There is considerable literature that supports the view that the existence of control shareholders reduces firm value (Stulz, 1988; Slovin and Sushka, 1993). Alternately, being better informed, the controlling shareholders may have thought that the view of other shareholders that the firm
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was better off keeping its Hong Kong listing was mistaken. Management may have feared the consequences of Chinese laws such as those concerning corporate governance. Hence, management may have assessed that the decline in value resulting from the switch was less that the decline in value that would ultimately occurred when other shareholders became better informed. The exploration of these possibilities is outside the scope of the current paper. Table 4 (Panel A) presents an analysis of trading in Hong Kong on days that are and are not holidays in Singapore. For each of the five members of the Jardine Table 4 Trading in Hong Kong on Singapore holidays and in Singapore on Hong Kong holidaysa Company
Mean number of shares per day (in millions) Singapore holidays
Panel A: Trading in Hong Kong Matheson 0.908 Strategic 0.782 Farm 1.825 Land 3.996 Oriental 0.642
(29) (28) (30) (30) (30)
1.129 1.037 1.999 4.953 0.793
(1213) (1213) (1273) (1272) (1273)
Panel B: Trading in Singapore Hong Kong holidays
Not Hong Kong holidays
Matheson Strategic Farm Land Oriental
0.970 0.858 1.553 3.185 0.505
0.370 0.436 0.545 1.179 0.317
(15) (15) (14) (14) (13)
t-Statistics
Not Singapore holidays
(485) (485) (425) (425) (420)
1.51 1.57 1.99 1.82 1.48
7.79 2.15 3.58 4.46 2.21
Note: It might be useful to identify these holidays for 1995 and 1996, which are representative of other years. For Hong Kong these are: Lunar New Year, 2 February 95; Ching Ming Festival, 5 April 95; Easter, 17 April 95; Dragon Boat Festival, 2 June 95; Queen’s Birthday, 19 June 95; Liberation Day, 28 August 95; Chung Yeung Festival, 1 November 95; Christmas, 26 December 95; Ching Ming Festival, 4 April 96; Easter, 8 April 96; Queen’s Birthday, 17 June 96; Dragon Boat Festival, 20 June 96; Liberation Day, 26 August 96; Chung Yeung Festival, 21 October 96; Christmas, 26 December 96. For Singapore these are: Hari Raya Puasa, 3 March 95; Labor Day, 1 May 95; Hari Raya Haji, 10 May 95; Hari Raya, 15 May 95; National Day, 9 August 95; Deepavali, 23 October 95; Hari Raya Haji, 29 April 96; Labor Day, 1 May 96; Vesak Day, 31 May 96; National Day, 9 August 96; Deepavali, 11 November 96. Significant at the 0.01 level. a In Panel A, we present the mean number of shares traded on the HKSE on days that are not holidays in Singapore and on days that are holidays in Singapore. For each firm, we rank the number of shares traded over all days and perform a t-test on the means of the ranks for holiday and non-holiday days. This is equivalent to a Wilcoxon rank sum test. In Panel B, we present the mean number of shares traded on the SES on days that are not holidays in Hong Kong and on days that are holidays in Hong Kong. Then, we calculate t-statistics as in the previous case. For Matheson and Strategic the pre-period is 2 January 1990 to 30 December 1994 and the post-period is 3 January 1995 to 31 December 1996. For Farm, Land, and Oriental, the pre-period is 2 January 1990 to 31 March 1995 and the post-period is 3 April 1995 to 31 December 1996. The number of observations is presented in parentheses. The number of observations can differ from firm to firm because of the differing time periods for the data and because days with zero trading volume are omitted. We replicate our analysis by dropping observations for three months before and three months after the switch, but we do not show these results because are findings are qualitatively unchanged.
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Group, trading is less active in Hong Kong when there is a holiday in Singapore, but the reduction in trading is not statistically significant at the 0.01 level. Considering Matheson, when there is a holiday in Singapore, trading in Hong Kong falls to an average of 908,000 shares from its non-holiday level of 1,129,000. Hence, we cannot reject Hypothesis 2. Table 4 (Panel B) shows that the level of trading in Singapore is significantly lower on days that are holidays in Hong Kong compared to other days. Again considering Matheson, when there is a holiday in Hong Kong, trading in Singapore falls to an average of 370,000 shares from the non-holiday level of 970,000 shares. Hence, we reject Hypothesis 3. We can get an indication of the possible level of trading on Jardine Group shares in Hong Kong by Singaporeans by examining the difference between columns three and two in Table 4 (Panel A). Moreover, Table 4 (Panel B) column 2 provides an indication of the level of trading in Singapore, excluding Hong Kong traders. Comparing the difference from Panel A with the level from Panel B (both figures multiplied by 1000), we have: 221, 370; 255, 436; 174, 545; 957, 1179; 151, 317. Since the second number in each pair is larger than the first in every case, we find that Singaporeans traded more actively when the primary listing was in their home market. Comparison of the difference between columns 2 and 3 in Table 4 (Panel B) with the level in Table 4 (Panel A) column 2 leads to the conclusion that Hong Kong investors traded Jardine Group shares more actively when the primary listing was in their home market. These results show that Singapore and Hong Kong investors each traded Jardine Group shares more actively when the shares were listed on their local market than when they were listed abroad. Because the Singapore market is much smaller than the Hong Kong market, this order flow segmentation led to a significant fall in trading volume following the switch. The results of the regression analysis are presented in Table 5. All of the coefficients of HKVOL are significant at the 0.05 level or better, indicating that the volume of trading in Jardine Group shares was significantly related to the volume of trading of other HKSE shares prior to the switch. 10 All of the coefficients of D1 SESVOL are positive and significant at the 0.05 level, except for the coefficient for Matheson, indicating that the volume of trading in Jardine Group shares was significantly related to the volume of trading on the SES following the switch. These results provide support for the primary market correlation hypothesis (Hypothesis 4). Only two of the coefficients of SESVOL are significant, indicating that Jardine Group volume was not strongly related to SES volume prior to the switch. However, all of the coefficients of D1 HKVOL are negative and significant at the 0.05 level, except for the coefficient for Matheson, indicating that following the switch the volume of trading in Jardine Group shares was inversely related to the volume of trading on the HKSE.
10 We estimated the regression including and excluding Jardine Group volume from the HKSE and SES volume and the results were qualitatively identical in each case.
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Table 5 Results of test of primary market correlation hypothesisa Intercept HKVOL SESVOL D1 HKVOL D1 SESVOL Adj R2
Matheson
Strategic
Farm
Land
Oriental
0.000 (2.04 ) 0.417 (3.72 ) 0.206 (1.74) 0.442 (1.93) 0.318 (1.39)
0.000 (0.61) 0.557 (5.43 ) 0.228 (2.11 ) 1.028 (4.90 ) 0.932 (4.46 )
0.000 (2.71 ) 0.321 (2.68 ) 0.050 (0.31) 1.177 (4.85 ) 1.133 (4.062 )
0.000 (2.579 ) 0.819 (7.76 ) 458 (3.27 ) 1.177 (8.32 ) 1.242 (5.06 )
0.000 (1.14) 0.28 (2.43 ) 0.224 (1.48) 0.842 (3.64 ) 0.868 (3.27 )
0.0887
0.2375
0.4937
0.4076
0.3465
Significant at the 0.05 level. Significant at the 0.01 level. a We regress the daily trading volume for each company belonging to the Jardine Group, in turn, against daily trading volume on the HKSE and the SES and two multiplicative variables. Define D1 as a dummy variable equal to 1 for the period after the move to the SES and 0 otherwise. The two multiplicative variables are (D1 HKVOL) and (D1 SESVOL). The first (second) multiplicative variable captures the relationship between the volume of trading in the individual firmÕs shares and the volume of trading on the Hong Kong (Singapore) exchange after the switch in listing. We use data for the three months before and three months after the change in primary listing from the HKSE to the SES. (We replicated the analysis other periods, but our conclusions were unchanged.) For ease of comparison, we present the standardized coefficients. Note that as shown in Table 1, the last day of trading with the HKSE as the primary listing was 30 December 1994 for Matheson and Strategic and 31 March 1995 for Farm, Land, and Oriental. The results are qualitatively identical whether Jardine Group volume is included or excluded from the market volume.
5. Conclusions In 1994 and early 1995 five members of the Jardine Group (Matheson, Strategic, Farm, Land, and Oriental) switched their primary listing from the HKSE to the SES. At the time of the switch, Jardine Group members represented more than 10% of the capitalization of the HKSE. Prior to the switch there had been no trading of Jardine Group member shares in Singapore and following the switch trading of Jardine Group member shares ceased in Hong Kong. We investigate the events associated with this switch and reach a number of conclusions. We document a significant decline in the volume of trading in Jardine Group member shares following the switch. In addition, we find significantly negative abnormal returns due to the decision to switch. In the US, there have been a number of studies of exchange switches between Nasdaq and AMEX/NYSE. These studies (Cowan et al., 1992; Baker and Johnson, 1990; Christie and Huang, 1994) have shown increased liquidity and positive abnormal returns due to the switch. An exception is Clyde et al. (1997) who examine switches from AMEX to Nasdaq and find decreased liquidity. But even in this case abnormal returns are positive. The Jardine case is unique in that the listing switch was from one country to a market only
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one-fourth as large in another country. Another unique aspect is that Jardine proceeded with the switch despite decreased liquidity accompanied by negative abnormal returns. Our case provides clear evidence that expected liquidity increases are not the sole reason for exchange switches and that management may perceive benefits from a switch in listing even if investors do not. Further, our results together with those of Clyde et al. (1997) provide evidence that increased liquidity is associated only with switches from smaller to larger markets. Our results complement those of Miller (1999) who reports that investorsÕ reaction is stronger for international cross-listings on larger markets. Cooper and Kaplanis (1994), among others, argue that investors prefer to invest in their home markets. We investigate this indirectly by analyzing trading in one market when there is a holiday in the other market. We find that the volume of trading is lower in Hong Kong on Singapore holidays prior to the switch (but the difference is not statistically significant) and that the volume of trading in Singapore after the switch is significantly lower on Hong Kong holidays. Our findings show that despite home bias enough Hong Kong investors trade in Singapore to significantly affect volume on Hong Kong holidays even though this trading is not sufficient to prevent an overall decline in trading volume. We find substantial support for the primary market volume correlation hypothesis, which states that the volume of trading of a firmÕs shares is correlated with the aggregate volume of trading on the primary market. The volume of trading in Jardine Group memberÕs shares was significantly related to the volume of trading on the HKSE prior to the switch and on the SES following the switch, supporting the view of Werner and Kleidon (1996) that cross-boarder order flow is segmented. References Baker, H.K., Johnson, M., 1990. A survey of management views on exchange listings. Quarterly Journal of Business and Economics 29, 3–20. Blass, A., Yafeh, Y., 2001. Vagabond shoes longing to stray: Why foreign firms list in the United States. Journal of Banking and Finance 25, 555–572. Christie, W.H.G., Huang, R.D., 1994. Market structures and liquidity: A transactions data study of exchange liquidity. Journal of Financial Intermediation 3, 300–326. Clyde, P., Schultz, P., Zaman, M., 1997. Trading costs and exchange delistings: The case of firms that voluntarily move from the American Stock Exchange to the Nasdaq. Journal of Finance 52, 2103– 2212. Cooper, I., Kaplanis, E., 1994. Home bias in equity portfolios, inflation hedging, and international capital market equilibrium. Review of Financial Studies 7, 45–60. Cowan, A.R., Carter, R.B., Dark, F.H., Singh, A.K., 1992. Explaining the NYSE listing choices of Nasdaq firms. Financial Management 21, 73–86. Domowitz, I., Glen, J., Madhavan, A., 1998. International cross-listing and order flow migration: Evidence from an emerging market. Journal of Finance 53, 2001–2027. Froot, K.A., Dabora, E.M., 1999. How are stock prices affected by the location of trade? Journal of Financial Economics 53, 189–216. Hewett, G., 1995. Jardines pulls off listing coup in Singapore, South China Morning Post. October 3 (This article is available from Reuters). Lim, S.N., 1995. All Jardine investors move shareholdings to SÕpore. Straits Times, January 3 (This article is available on Reuters).
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McInish, T.H., Wood, R.A., 1990. A transactions data analysis of the variability of common stock returns 1980–84. Journal of Banking and Finance 14, 99–112. Miller, D.P., 1999. The market reaction to international cross-listings: Evidence from depository receipts. Journal of Financial Economics 51, 103–123. Slovin, M.B., Sushka, M.E., 1993. Ownership concentration, corporate control activity, and firm value: Evidence from the death of inside blockholders. Journal of Finance 48, 1293–1321. Stulz, R., 1988. Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics 20, 25–54. Tse, Y., 1999. Round-the-clock market efficiency and home bias: Evidence from the international Japanese government bonds futures markets. Journal of Banking and Finance 23, 1831–1860. Werner, I.M., Kleidon, A.W., 1996. UK and US trading of British cross-listed stocks: An intraday analysis of market integration. Review of Financial Studies 9, 619–664.
Trading volume and location of trade: Evidence from Jardine group listings in Hong Kong and Singapore Sie Ting Lau b
a,1
, Thomas H. McInish
b,*
a Department of Banking and Finance, Nanyang Technological University, Singapore, Singapore Department of Finance, Insurance and Real Estate, Fogelman College of Business and Economics, The University of Memphis, Memphis, TN 38152, USA
Accepted 11 October 2001
Abstract The switch in primary exchange listing of members of the Jardine Group from Hong Kong to Singapore provides a unique setting in which to examine changes in exchange listings. Previous studies of listing switches from Nasdaq to AMEX/NYSE find increases in liquidity and positive abnormal returns. Clyde et al. (Journal of Finance 52 (1997) 2103) report decreased liquidity and positive abnormal returns associated with switches from AMEX to Nasdaq. In contrast, we find decreased liquidity as measured by trading volume accompanied by negative abnormal returns––demonstrating that expected liquidity increases are not the sole reason for exchange switches and that management may perceive benefits from a switch in listing even if investors do not. Moreover, evidence is accumulating that the increased liquidity observed by previous researches is only associated with switches from smaller to larger markets. In spite of the fact that trading volume declines after the switch, there are still a sufficient number of Hong Kong investors trading in Singapore to cause a statistically significant decline in trading volume in Singapore when there is a holiday in Hong Kong. Hence, order flow is segmented, but not completely. We find that individual firm trading volume is most closely associated with the market on which it is traded most. Ó 2003 Elsevier Science B.V. All rights reserved. JEL classification: G15 Keywords: Volume; Listings; Hong Kong; Singapore
*
Corresponding author. Tel.: +1-901-678-4662; fax: +1-901-678-3006. E-mail addresses: [email protected] (S.T. Lau), [email protected] (T.H. McInish). 1 Tel.: +65-790-4649; fax: +65-791-3697. 0378-4266/03/$ - see front matter Ó 2003 Elsevier Science B.V. All rights reserved. doi:10.1016/S0378-4266(02)00279-0
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1. Introduction In late 1994 and early 1995, five companies associated with the Jardine Group that had historically traded on the Hong Kong Stock Exchange (HKSE), where they accounted for more than 10% of the total market capitalization, switched their primary listing to the Stock Exchange of Singapore (SES). A switch in primary listing from one country to another is unusual. This event is also unusual in that most switches involve moving from a smaller or less prestigious market to a much larger market. But the Hong Kong market is four times as large as the Singapore market. Miller (1999) finds that investorsÕ perception of the benefits of cross-listings is positively correlated with the size of the new market. We believe that investigation of this event provides insights such as the liquidity effects of stock exchange listing changes and the extent of order flow segmentation. The topic of primary listing location choice is growing in importance and there is a trend for firms to have their primary listing outside their home country. Both Pacific Internet and Creative Technology, which are based in Singapore, chose to list on Nasdaq instead of on the Singapore Exchange. Similarly, Chinese companies listing on the NYSE include China Tire and Ek Chor China Motor Cycle. Blass and Yafeh (2001) argue that high quality Israeli firms choose to list initially in the US to signal their quality. There has been considerable interest in how switches in a firmÕs primary listing from one exchange to another affects liquidity. Cowan et al. (1992) postulate that firms choose to list on the NYSE ‘‘when the perceived benefits, including increased liquidity, are greater’’. Baker and Johnson (1990) report that managers view better liquidity as a main reason for choosing a NYSE listing. Christie and Huang (1994) report increased liquidity for stocks that move from the Nasdaq to the NYSE. In contrast, Clyde et al. (1997) are unable to explain their finding that liquidity decreased for stocks that moved from the American Stock Exchange to Nasdaq, but stock excess returns were positive when the switch was announced. We show that the switch in Jardine GroupÕs primary listing resulted in a statistically significant decline in liquidity as measured by trading volume for four of the five Jardine Group firms. 2 But unlike previous cases, we show that investors viewed the decision to switch Jardine Group listings as bad news. Abnormal returns for dates that are associated with the switch are significantly negative, which is consistent with the view that the switch in primary listing adversely affected value. 3 Our results combined with those of Clyde et al. (1997) lead us to conclude that while liquidity benefits may motivate some exchange switches, there have been a number of switches that were not motivated by liquidity.
2
The remaining firm, Oriental, had low trading volume in both markets. The entire market dropped in 1994, but the fall in value of Jardine Group shares was significantly greater that the decline in value of other Hong Kong firms. Jardine investors may have been reacting to fear that real assets remaining in China would be at risk, that liquidity would be lower in Singapore, or to other factors. 3
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Our finding that aggregate trading volume declined following the switch demonstrates that order flow is segmented, but does not indicate whether a significant number of Hong Kong individuals and institutions continue to trade Jardine group stocks in Singapore following the switch. 4 We shed light on this question by analyzing trading in Hong Kong on Singapore holidays prior to the switch and trading in Singapore on Hong Kong holidays following the switch. Prior to the switch, we show that volume in Hong Kong is not significantly lower on days that are holidays in Singapore, but not in Hong Kong. We conclude that Singaporeans were not a significant factor in the trading of Jardine Group shares prior to the switch. Following the switch, trading volume in Singapore fell significantly on days that were holidays in Hong Kong, but not in Singapore. Hence, we conclude that many Hong Kong investors continued to trade Jardine Group shares in Singapore, but many others did not so that, on balance, trading volume declined after the switch. The unwillingness or inability of Hong Kong investors to trade in Singapore was a significant factor in the lower trading volume of Jardine Group members following the switch. Because the Hong Kong market is about four times as large as the Singapore market, new Singapore investors were not able to make up for the decline in trading by Hong Kong investors. 5 The extent to which there is cross-border trading between Hong Kong and Singapore is an empirical question. By comparing the percentage of the worldÕs market capitalization with the percentage of the equity portfolio in domestic equities (in parentheses) for eight major markets, Cooper and Kaplanis (1994) demonstrate that investors prefer to invest in their home markets: France, 2.6 (64.4); Italy, 1.9 (91.0); Japan, 43.7 (86.7); Spain, 1.1 (94.2); Sweden, 0.8 (100.0); UK, 10.3 (78.5); USA, 36.4 (98.0); Germany, 3.2 (75.4). These authors identify a number of reasons that might explain why investors favor domestic portfolios including hedges against domestic inflation risk and non-traded goods, and transactions costs due to withholding taxes, informational disadvantages, restrictions, and differential access to markets. These barriers to cross-boarder portfolio investment collectively lead to home bias, the propensity of domestic investors to overweight domestic and underweight non-domestic assets relative to a value-weight benchmark. Turning to another subject, Werner and Kleidon (1996) investigate British equities that are also traded in the US. These authors argue that on an intraday basis,
4 One referee points out that certain institutional funds may be forced by laws, regulations, company charters and the like, to invest in companies that are listed on certain exchanges. There may be funds that have pension money for people in Hong Kong, and they may only be able to invest in Hong Kong listed securities, or there may be mutual funds that say that they will hold a certain percentage of their assets in companies that trade only on certain exchanges. That would mean that if a company delisted in Hong Kong some of the investor base would have to stop trading in it, while others would continue. We view all of these as helping to explain why order flow segmentation exists. 5 According to the International Finance Corporation, the market capitalization as of the November 1993, which is approximately the time of our study, was 301 billion USD for Hong Kong and 80 billion USD for Singapore.
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if capital markets are integrated, there should be a single intraday U-shaped pattern in volume (McInish and Wood, 1990). Instead, Werner and Kleidon (1996) find that the intraday pattern in volume in New York and London, respectively, is closely related to the volume of non-cross-listed equities in each market. These authors conclude, ‘‘overall, the evidence indicates that order flow for cross-listed securities is segmented’’. 6 Examining the futures market for Japanese government bonds operated in London and Tokyo, Tse (1999) demonstrates that traders have a marked preference for trading in the home market. Further Tse finds that the London market exhibits an intraday U-shaped pattern in volume that is similar to the pattern for other assets traded in the same market. We extend this thinking to the examination of volume by testing the primary market volume correlation hypothesis. This hypothesis states that the volume of trading of a security is significantly correlated with the volume of trading on the market on which it is traded most. We find strong support for this hypothesis. The remainder of this paper is organized into four sections. Section 2 provides background, Section 3 discusses the hypotheses and the data and Section 4 presents the results. Section 5 provides a summary and conclusions.
2. Background Jardine Group is the name commonly used for Jardine Matheson (Matheson), one of the oldest hongs or trading houses in Hong Kong, and its subsidiaries. These subsidiaries are Dairy Farm International Holdings (Farm), Hong Kong Land Holdings (Land), Mandarin Oriental International (Oriental), Jardine Strategic Holdings (Strategic), and Jardine International Motor Holdings (Motor). In the first half of the 1990s Jardine Group management began to have concerns about the regulatory climate in Hong Kong that would exist following the takeover of Hong Kong by the Peoples Republic of China in 1997. Initially, these concerns prompted most Group members to switch their primary listing from the HKSE to the London Stock Exchange (LSE) in 1991. This event resulted in the LSE becoming the chief regulator of the Group members and also made it possible to delist from the HKSE on 30 daysÕ notice and without stockholder approval. Further distancing themselves from Hong Kong, Matheson, Farm and Oriental, and Strategic were listed on the SES in 1991 and Matheson, Farm, Land, and Oriental begin a sponsored program of ADRs in the US. Despite all of these changes, news reports and discussions with dealers indicated that more than 90% of trading was on the HKSE and subsequently
6 Froot and Dabora (1999) demonstrate that returns are correlated with the returns of the market on which they are traded most. Domowitz et al. (1998) find that cross-listing is ‘‘associated with an increase in the variance of public information flows unrelated to the volatility induced by changes in liquidity and trading activity. This is not consistent with market integration’’.
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on the SES. Further, no trading took place in Singapore until the shares were delisted in Hong Kong. 7 Jardine Group management was also concerned about Hong KongÕs takeover regulations and requested an exemption from the Hong Kong government. In 1994 negotiations between the Jardine Group and the Hong Kong government broke down and Jardine Group members (except Motor) announced that they would delist from the HKSE. Following delisting significant trading activity began in Singapore. Table 1 provides a chronology of the events related to the delisting of Jardine Group shares from the HKSE. The delisting of Jardine Group shares from the HKSE and the beginning of active trading on the SES provides an opportunity to examine international equity market integration. Since Singapore and Hong Kong are in similar time zones, if capital markets are fully integrated we expect the HKSE and the SES to be perfect substitutes as trading venues. On the other hand, trading on the LSE takes place outside of normal business hours in Asia and, hence, would not be a good substitute as a trading venue.
3. Hypotheses, methodology, and data 3.1. Data The data for this study were obtained from the PACAP database and comprise the daily price and number of shares traded for each Jardine Group firm from the beginning of 1990 until the end of 1996. We also obtained price and volume data for the Hong Kong and Singapore stock indexes. We compare trading in Hong Kong and Singapore to identify dates that were holidays in one market but not in the other. While the specific identity of each holiday is not important for our analysis, nevertheless, we ascertained the names of these holidays for 1994 and 1995. Table 4 provides a list of these dates and names. The last day of trading on the HKSE was 30 December 1994 for Matheson and Strategic and 31 March 1995 for Farm, Land, and Oriental. All statistical tests are at the 0.01 level. Dates for the chronology of events related to the switch were obtained from Lexis–Nexis and Reuters Morning briefing.
7 According to Bloomberg, the percentage of shares traded in Singapore during 1995 and 1996 (the latter in parentheses) for each firm is as follows: Farm, 99.49 (97.90); Matheson, 99.09 (92.39); Strategic, 98.68 (97.98); Land, 99.94 (99.80); and Oriental, 99.66 (98.79). A number of press reports discussed the switch. According to Lim (1995) ‘‘All the investors in Jardine Matheson and Jardine Strategic Holdings, which delisted from the HKSE at the end of last week, have moved their shareholdings to Singapore, according to group company secretary Neil McNamara. ÔNone has moved to London, nobody has moved to Sydney,Õ he said last Friday. ÔIt looks like Singapore will be the focus of tradingÕ.’’ Hewett (1995) reports that ‘‘Jardine group companies have managed to pull off a controversial secondary listing experiment in Singapore. A head of research at a Hong Kong-based brokerage said: ÔPredictions that the group was going to be left high and dry in Singapore have been proven wrongÕ.’’
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Table 1 Chronology of announcements leading to the delisting of Jardine Group shares from the HKSEa Date
Announcement
29 November 1990
Matheson threatens to delist from HKSE unless the firm is granted exemption from primary securities regulation in Hong Kong. The companyÕs shares are also listed in London and Luxembourg Group may delist from HKSE or switch its primary listings from HKSE to LSE according to rumors reported by news services. Both the Group and the HKSE deny that there is a feud between them The SES grants Matheson, Strategic, Farm, and Oriental permission to list their shares Matheson announces discussions with the government to exempt the firm from Hong KongÕs takeover code and to use London as its primary listing Matheson, Farm, Land, and Oriental begin a sponsored program of ADRs in the US HKSE agrees to allow Matheson to switch to a secondary listing, but not a trading-only listing status, which would have exempted the firm from Hong KongÕs listing and takeover rules. The LSE will become the lead regulator and the firm can delist from the HKSE on 30 daysÕ notice and without shareholder approval HKSE approved the secondary listing for Group Shareholders of Matheson, Farm, Land, Oriental, and Strategic approve LSE and HKSE listing plans A local newspaper reports that talks between Group and the authorities over exemption from Hong KongÕs takeover code have stalled and that Group might retaliate by delisting from HKSE. Group denies that it plans to delist Matheson announces that it will delist from HKSE on December 31, 1994. Strategic will also delist, but other subsidiaries have no immediate plans to delist from HKSE Land says it may delist from HKSE Oriental says it will decide in autumn on whether to delist from HKSE Farm will delist from HKSE effective March 31, 1995 (The next day news reports indicate that Land and Oriental will also delist) Last day of trading on HKSE for Matheson and Strategic Last day of trading on HKSE for Farm, Land and Oriental
10 January 1991
8 February 1991 29 March 1991 24 June 1991 12 December 1991
6 May 1992 4 June 1992 8 March 1994
23 March 1994
31 May 1994 5 July 1994 15 September 1994 30 December 1994 31 March 1995
Notes: 1. Following the listing of shares of Matheson, Farm, Oriental, and Strategic on the SES there was no trading activity in Singapore. Actual trading only began at the time of the delisting from the HKSE. 2. In several cases, announcements were also made on the day following the events listed above. We have not included these announcements in our analysis, because we believe that in most cases the information contained in the second announcement are anticipated by investors. In any event the exclusion of these events does not affect our conclusions. These events are: (a) 24 March 1994: Strategic announces that it will delist from HKSE on 31 December 1994; (b) 1 June 1994: Newspapers report that Farm may delist from HKSE. Motor says it has no plans to delist from HKSE while Oriental says it has no plans to delist until the next board meeting in September; (c) 16 September 1994: Land and Oriental will delist from HKSE on 31 March 1995. a This table lists the chronology of events leading to the dropping of the HKSE listings by members of the Jardine Group. Jardine Group (Group) is the name commonly used for Jardine Matheson (Matheson) and its subsidiaries. These subsidiaries are Hong Kong Land Holdings (Land), Dairy Farm International Holdings (Farm), Jardine Strategic Holdings (Strategic), Mandarin Oriental International (Oriental), and Jardine International Motor Holdings (Motor). On 3 January 1995, Matheson and Strategic dropped their listing on the HKSE. On 1 April 1995, Land, Farm, and Oriental dropped their HKSE listing. Motor did not drop its HKSE listing.
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3.2. Hypotheses and methodology Before beginning our analysis of how the switch affected various aspects of trading volume, we investigate returns for events identified in Table 1 that are connected with the switch in primary exchange listing. If location of trade matters, because the Singapore market is smaller than the Hong Kong market, trading volume is likely to decline. Hence, we expect to observe statistically significant negative returns associated with the switch. For each event day we calculate two-day abnormal returns for the date identified and the following trading day. The abnormal return is the return for the individual company less the return for the Hang Seng index where the latter is adjusted to exclude Jardine Group firms. We calculate standard deviations of twoday returns for the first nine months of 1990 for use with the events in 1990 through 1992 and for the period 1 July 1992 to the end of March 1993 for the remaining events. We calculate t-statistics by dividing the abnormal return for each event date (including the following day) by the appropriate standard error. 8 Next, we investigate how the change in the primary listing from the HKSE to the SES affects the volume of trading. The Hong Kong market is about four times as large as the Singapore market. Hence, in the presence of significant order flow segmentation, we expect the volume of trading to fall substantially following the switch to Singapore. Specifically, we test the following null hypothesis: Hypothesis 1. The number of shares traded on the SES is the same as the number of shares traded on the HKSE. While a rejection of the null hypothesis in favor of a finding of a statistically significant decline in trading volume following the switch demonstrates that order flow is segmented, it does not indicate whether Hong Kong investors continue to trade Jardine Group firms following the switch. We address this question by investigating trading volume on days that are trading holidays in one country, but not in the other. If Singapore (Hong Kong) traders trade actively in Hong Kong (Singapore), then a trading holiday in Singapore (Hong Kong) should significantly affect the volume of trading in Hong Kong (Singapore). The specific hypotheses that we test are: Hypothesis 2. There is no difference in trading volume on the HKSE for shares of Jardine Group firms for days that are and are not trading holidays in Singapore. Hypothesis 3. There is no difference in trading volume on the SES for shares of Jardine Group firms for days that are and are not trading holidays in Hong Kong. If the hypotheses are rejected, we conclude that order flow segmentation is not complete.
8 We replicated the analysis by omitting data for the three months just before and just after the delisting, but we do not report these results because our conclusions were unchanged.
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In addition to examining holidays in general, we investigate whether holidays that might be recognized by individuals in both countries are affecting our results. Our approach is to examine holidays that are likely to be celebrated only in one country, namely QueenÕs Birthday and Liberation Day in Hong Kong and Singapore National Day and Deepavali in Singapore. QueenÕs Birthday honors the birthday of the Queen of England. This holiday is no longer celebrated in Hong Kong since its re-incorporation into China. Liberation Day celebrates victory in World War II. Deepavali is celebrated by Indians to mark the beginning of Indian New Year. Singapore National Day marks the independence of Singapore from Malaysia. We do not present these results below because our results for these holidays are qualitatively the same as for all holidays. Our statistical test for Hypotheses 1–3 proceeds as follows. First, we jointly rank the observations for the two treatments being compared (say, holiday versus nonholiday). Next, we use a t-test to test the hypothesis that the means of the ranks for each treatment are the same. This is equivalent to a Wilcoxon rank sum test. 9 Using transactions data, Werner and Kleidon (1996) offer evidence to support the primary market correlation hypothesis for British equities cross-listed in the US. We extend their work by testing whether this hypothesis holds for firms that switch their primary listing from one country to another. Specifically, we test Hypothesis 4. The volume of trading in a firmÕs stock is correlated with the volume of trading in the market on which it is traded most. We test this hypothesis by estimating the following linear regression: VOLi;t ¼ b0 þ b1 HKVOLt þ b2 SESVOLt þ b3 D1 HKVOLt þ b4 D1 SESVOLt þ et
ð1Þ
where VOLi;t is the number of shares of firm i traded on day t, HKVOLt the number of shares traded on the HKSE on day t, SESVOLt the number of shares traded on the SES on day t, D1 a dummy variable that equals 1 when the firmÕs primary listing was the SES and 0 otherwise, D1 HKVOLt the product of D1 and HKVOL, D1 SESVOLt the product of D1 and SESVOL, and e a random error term. In regression equation (1), the coefficients of HKVOL and SESVOL capture the relationship between the daily volume of trading in the individual firmÕs shares and the volume of trading on each respective exchange in the period before the change in listing. The coefficients of (D1 HKVOL) and (D1 SESVOL) capture the relationship between the volume of trading in the individual firmÕs shares and the volume of trading on each respective exchange after the switch in listing. If the primary market volume correlation hypothesis holds, we expect the coefficients of HKVOL and (D1 SESVOL) to be significantly positive, indicating a strong positive relationship between firm volume and Hong Kong volume in the pre-switch period and between 9 We investigate various approaches to controlling for changes in volume on the HKSE and the SES over the sample period, but we do not report these results because our conclusions were unchanged.
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firm volume and Singapore volume in the post-switch period. We do not have hypotheses concerning the remaining coefficients.
4. Results Table 2 presents the two-day abnormal returns for the day of each event reported in Table 1 and the following trading day. We report two-day returns because we are uncertain whether the announcements reported in Table 1 occurred during trading hours on the day listed below or after the market close. On 8 February 1991, Matheson, Strategic, Farm, and Oriental were granted approval to switch their primary listing from the HKSE to the LSE. The market clearly assessed this as a negative event. The abnormal returns for all members of the Jardine Group were significantly negative on that date. Further, the abnormal returns for all members of the Jardine Group were also significantly negative on 6 May 1992 when the HKSE approved the secondary listing and on 23 March 1994 when Matheson announced its delisting. Investors clearly viewed these events as significant and, in general, reacted negatively to the Jardine GroupÕs delisting from the HKSE. For each member of the Jardine Group, there is a sudden and dramatic shift of trading when each member switches its primary listing to Singapore. Prior to the Table 2 Abnormal returns and t-statistics for event daysa Date
Matheson
Farm
Land
Oriental
Aret
Aret
t-Stat.
Aret t-Stat.
Aret
t-Stat.
Aret
t-Stat.
0.47 0.26 3.58 4.58 0.34 0.18 5.90 0.27 2.34 6.05 2.77 1.45 6.68
2.37 1.29 18.06 23.07 1.69 0.93 29.73 1.33 11.50 29.73 13.62 7.11 32.84
1.48 0.95 1.69 0.54 0.92 1.53 0.40 0.51 0.34 7.17 0.50 0.40 0.37
2.03 1.44 5.20 1.14 1.50 0.24 1.29 1.22 3.58 14.38 1.75 0.98 4.35
10.96 7.76 28.04 6.13 8.08 1.27 6.93 6.19 18.09 72.72 8.83 4.98 22.02
0.79 2.48 5.65 1.01 0.24 4.34 1.29 0.27 5.64 12.98 0.83 0.38 1.89
5.17 16.24 36.92 6.63 1.57 28.38 8.40 1.69 35.32 81.31 5.22 2.36 11.87
t-Stat.
29 November 1990 1.13 7.07 10 January 1991 0.26 1.61 8 February 1991 5.35 33.57 29 March 1991 1.14 7.13 24 June 1991 1.08 6.80 12 December 1991 4.63 29.04 6 May 1992 3.21 20.11 4 June 1992 2.12 10.43 8 March 1994 5.52 27.17 23 March 1994 13.86 68.15 5 July 1994 0.02 0.12 31 May 1994 1.15 5.66 15 September 1994 0.51 2.50
12.10 7.79 13.82 4.41 7.53 12.51 3.30 3.27 2.20 46.09 3.24 2.57 2.36
Strategic
Significant at the 0.01 level. a This table presents the two-day abnormal returns for the day of each event reported in Table 1 (through 15 September 1994) and the following trading day. We calculate abnormal returns by subtracting the holding period returns for the Hang Seng Index, excluding Jardine Group firms. We report two-day abnormal returns because we are uncertain whether the announcements listed in Table 1 occurred during trading hours on the day listed below or after the market close. For each firm, we calculate the standard deviation of two-day abnormal returns for the first nine months of 1990 for use with the events for 1990–92 and for 1 July 1992 to the end of March 1993 for use with the 1994 events. Using these standard deviations, we calculate t-statistics for each event day.
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Table 3 Mean number of shares traded on the HKSE and the SESa Company Matheson Strategic Farm Land Oriental
Mean number of shares per day (in millions) Singapore
Hong Kong
t-Statistics
0.919 0.933 1.766 3.322 0.660
1.490 1.318 2.409 5.371 0.627
6.56 6.38 6.48 10.92 0.56
Significant at the 0.01 level. a We present the mean number of shares traded on the HKSE and on the SES. For each firm we use data for one year before and after delisting in Hong Kong. Then, for each firm, we rank the number of shares traded on each day over all days and perform a t-test on the mean of the ranks for each exchange. This is equivalent to a Wilcoxon rank sum test.
switch there was no trading in Singapore even though the firms had a listing on the SES. Following the switch, trading in Hong Kong ceased and there was a dramatic jump in trading in Singapore. As we showed earlier, almost all of the worldwide trading took place in Singapore following the switch in listing. There was very little trading of Jardine Group shares outside of Hong Kong prior to the switch and outside of Singapore following the switch. Table 3 shows that for each Jardine Group member trading volume was significantly lower (at the 0.01 level) on the SES than on the HKSE, except for Oriental. The ratio of SES volume to HKSE volume was as follows: Matheson (0.804), Strategic (0.7079), Farm (0.7330), Land (0.6185), and Oriental (0.10526). Hence, on balance we reject Hypothesis 1. Our results contrast to those of previous researchers (Cowan et al., 1992; Baker and Johnson, 1990; Christie and Huang, 1994) who report increased liquidity following switches in exchange listings. As we indicated earlier, Clyde et al. (1997) are puzzled by their finding that for stocks that moved from the AMEX to Nasdaq, liquidity decreased, but stock excess returns were positive. Our finding of a significant decline in liquidity for four of the five Jardine Group firms accompanied by significantly negative abnormal returns seems more reasonable. Since liquidity has value, the decline in liquidity resulting from the switch predictably lowers firm value. Of course, we cannot rule out the possibility that other explanations such as investor fears concerning the assets of the firms remaining in Hong Kong also contributed to the decline in value. Our results offer their own puzzle. Why did Jardine management proceed with the switch even though it resulted in a decline in firm value? While a complete investigation of this question is outside the scope of our paper, we offer several possible explanations, though we do not claim to be exhaustive. The controlling shareholders, not contemplating the sale of the shares, may have decided to simply ignore the liquidity preferences of other shareholders. There is considerable literature that supports the view that the existence of control shareholders reduces firm value (Stulz, 1988; Slovin and Sushka, 1993). Alternately, being better informed, the controlling shareholders may have thought that the view of other shareholders that the firm
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was better off keeping its Hong Kong listing was mistaken. Management may have feared the consequences of Chinese laws such as those concerning corporate governance. Hence, management may have assessed that the decline in value resulting from the switch was less that the decline in value that would ultimately occurred when other shareholders became better informed. The exploration of these possibilities is outside the scope of the current paper. Table 4 (Panel A) presents an analysis of trading in Hong Kong on days that are and are not holidays in Singapore. For each of the five members of the Jardine Table 4 Trading in Hong Kong on Singapore holidays and in Singapore on Hong Kong holidaysa Company
Mean number of shares per day (in millions) Singapore holidays
Panel A: Trading in Hong Kong Matheson 0.908 Strategic 0.782 Farm 1.825 Land 3.996 Oriental 0.642
(29) (28) (30) (30) (30)
1.129 1.037 1.999 4.953 0.793
(1213) (1213) (1273) (1272) (1273)
Panel B: Trading in Singapore Hong Kong holidays
Not Hong Kong holidays
Matheson Strategic Farm Land Oriental
0.970 0.858 1.553 3.185 0.505
0.370 0.436 0.545 1.179 0.317
(15) (15) (14) (14) (13)
t-Statistics
Not Singapore holidays
(485) (485) (425) (425) (420)
1.51 1.57 1.99 1.82 1.48
7.79 2.15 3.58 4.46 2.21
Note: It might be useful to identify these holidays for 1995 and 1996, which are representative of other years. For Hong Kong these are: Lunar New Year, 2 February 95; Ching Ming Festival, 5 April 95; Easter, 17 April 95; Dragon Boat Festival, 2 June 95; Queen’s Birthday, 19 June 95; Liberation Day, 28 August 95; Chung Yeung Festival, 1 November 95; Christmas, 26 December 95; Ching Ming Festival, 4 April 96; Easter, 8 April 96; Queen’s Birthday, 17 June 96; Dragon Boat Festival, 20 June 96; Liberation Day, 26 August 96; Chung Yeung Festival, 21 October 96; Christmas, 26 December 96. For Singapore these are: Hari Raya Puasa, 3 March 95; Labor Day, 1 May 95; Hari Raya Haji, 10 May 95; Hari Raya, 15 May 95; National Day, 9 August 95; Deepavali, 23 October 95; Hari Raya Haji, 29 April 96; Labor Day, 1 May 96; Vesak Day, 31 May 96; National Day, 9 August 96; Deepavali, 11 November 96. Significant at the 0.01 level. a In Panel A, we present the mean number of shares traded on the HKSE on days that are not holidays in Singapore and on days that are holidays in Singapore. For each firm, we rank the number of shares traded over all days and perform a t-test on the means of the ranks for holiday and non-holiday days. This is equivalent to a Wilcoxon rank sum test. In Panel B, we present the mean number of shares traded on the SES on days that are not holidays in Hong Kong and on days that are holidays in Hong Kong. Then, we calculate t-statistics as in the previous case. For Matheson and Strategic the pre-period is 2 January 1990 to 30 December 1994 and the post-period is 3 January 1995 to 31 December 1996. For Farm, Land, and Oriental, the pre-period is 2 January 1990 to 31 March 1995 and the post-period is 3 April 1995 to 31 December 1996. The number of observations is presented in parentheses. The number of observations can differ from firm to firm because of the differing time periods for the data and because days with zero trading volume are omitted. We replicate our analysis by dropping observations for three months before and three months after the switch, but we do not show these results because are findings are qualitatively unchanged.
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Group, trading is less active in Hong Kong when there is a holiday in Singapore, but the reduction in trading is not statistically significant at the 0.01 level. Considering Matheson, when there is a holiday in Singapore, trading in Hong Kong falls to an average of 908,000 shares from its non-holiday level of 1,129,000. Hence, we cannot reject Hypothesis 2. Table 4 (Panel B) shows that the level of trading in Singapore is significantly lower on days that are holidays in Hong Kong compared to other days. Again considering Matheson, when there is a holiday in Hong Kong, trading in Singapore falls to an average of 370,000 shares from the non-holiday level of 970,000 shares. Hence, we reject Hypothesis 3. We can get an indication of the possible level of trading on Jardine Group shares in Hong Kong by Singaporeans by examining the difference between columns three and two in Table 4 (Panel A). Moreover, Table 4 (Panel B) column 2 provides an indication of the level of trading in Singapore, excluding Hong Kong traders. Comparing the difference from Panel A with the level from Panel B (both figures multiplied by 1000), we have: 221, 370; 255, 436; 174, 545; 957, 1179; 151, 317. Since the second number in each pair is larger than the first in every case, we find that Singaporeans traded more actively when the primary listing was in their home market. Comparison of the difference between columns 2 and 3 in Table 4 (Panel B) with the level in Table 4 (Panel A) column 2 leads to the conclusion that Hong Kong investors traded Jardine Group shares more actively when the primary listing was in their home market. These results show that Singapore and Hong Kong investors each traded Jardine Group shares more actively when the shares were listed on their local market than when they were listed abroad. Because the Singapore market is much smaller than the Hong Kong market, this order flow segmentation led to a significant fall in trading volume following the switch. The results of the regression analysis are presented in Table 5. All of the coefficients of HKVOL are significant at the 0.05 level or better, indicating that the volume of trading in Jardine Group shares was significantly related to the volume of trading of other HKSE shares prior to the switch. 10 All of the coefficients of D1 SESVOL are positive and significant at the 0.05 level, except for the coefficient for Matheson, indicating that the volume of trading in Jardine Group shares was significantly related to the volume of trading on the SES following the switch. These results provide support for the primary market correlation hypothesis (Hypothesis 4). Only two of the coefficients of SESVOL are significant, indicating that Jardine Group volume was not strongly related to SES volume prior to the switch. However, all of the coefficients of D1 HKVOL are negative and significant at the 0.05 level, except for the coefficient for Matheson, indicating that following the switch the volume of trading in Jardine Group shares was inversely related to the volume of trading on the HKSE.
10 We estimated the regression including and excluding Jardine Group volume from the HKSE and SES volume and the results were qualitatively identical in each case.
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Table 5 Results of test of primary market correlation hypothesisa Intercept HKVOL SESVOL D1 HKVOL D1 SESVOL Adj R2
Matheson
Strategic
Farm
Land
Oriental
0.000 (2.04 ) 0.417 (3.72 ) 0.206 (1.74) 0.442 (1.93) 0.318 (1.39)
0.000 (0.61) 0.557 (5.43 ) 0.228 (2.11 ) 1.028 (4.90 ) 0.932 (4.46 )
0.000 (2.71 ) 0.321 (2.68 ) 0.050 (0.31) 1.177 (4.85 ) 1.133 (4.062 )
0.000 (2.579 ) 0.819 (7.76 ) 458 (3.27 ) 1.177 (8.32 ) 1.242 (5.06 )
0.000 (1.14) 0.28 (2.43 ) 0.224 (1.48) 0.842 (3.64 ) 0.868 (3.27 )
0.0887
0.2375
0.4937
0.4076
0.3465
Significant at the 0.05 level. Significant at the 0.01 level. a We regress the daily trading volume for each company belonging to the Jardine Group, in turn, against daily trading volume on the HKSE and the SES and two multiplicative variables. Define D1 as a dummy variable equal to 1 for the period after the move to the SES and 0 otherwise. The two multiplicative variables are (D1 HKVOL) and (D1 SESVOL). The first (second) multiplicative variable captures the relationship between the volume of trading in the individual firmÕs shares and the volume of trading on the Hong Kong (Singapore) exchange after the switch in listing. We use data for the three months before and three months after the change in primary listing from the HKSE to the SES. (We replicated the analysis other periods, but our conclusions were unchanged.) For ease of comparison, we present the standardized coefficients. Note that as shown in Table 1, the last day of trading with the HKSE as the primary listing was 30 December 1994 for Matheson and Strategic and 31 March 1995 for Farm, Land, and Oriental. The results are qualitatively identical whether Jardine Group volume is included or excluded from the market volume.
5. Conclusions In 1994 and early 1995 five members of the Jardine Group (Matheson, Strategic, Farm, Land, and Oriental) switched their primary listing from the HKSE to the SES. At the time of the switch, Jardine Group members represented more than 10% of the capitalization of the HKSE. Prior to the switch there had been no trading of Jardine Group member shares in Singapore and following the switch trading of Jardine Group member shares ceased in Hong Kong. We investigate the events associated with this switch and reach a number of conclusions. We document a significant decline in the volume of trading in Jardine Group member shares following the switch. In addition, we find significantly negative abnormal returns due to the decision to switch. In the US, there have been a number of studies of exchange switches between Nasdaq and AMEX/NYSE. These studies (Cowan et al., 1992; Baker and Johnson, 1990; Christie and Huang, 1994) have shown increased liquidity and positive abnormal returns due to the switch. An exception is Clyde et al. (1997) who examine switches from AMEX to Nasdaq and find decreased liquidity. But even in this case abnormal returns are positive. The Jardine case is unique in that the listing switch was from one country to a market only
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one-fourth as large in another country. Another unique aspect is that Jardine proceeded with the switch despite decreased liquidity accompanied by negative abnormal returns. Our case provides clear evidence that expected liquidity increases are not the sole reason for exchange switches and that management may perceive benefits from a switch in listing even if investors do not. Further, our results together with those of Clyde et al. (1997) provide evidence that increased liquidity is associated only with switches from smaller to larger markets. Our results complement those of Miller (1999) who reports that investorsÕ reaction is stronger for international cross-listings on larger markets. Cooper and Kaplanis (1994), among others, argue that investors prefer to invest in their home markets. We investigate this indirectly by analyzing trading in one market when there is a holiday in the other market. We find that the volume of trading is lower in Hong Kong on Singapore holidays prior to the switch (but the difference is not statistically significant) and that the volume of trading in Singapore after the switch is significantly lower on Hong Kong holidays. Our findings show that despite home bias enough Hong Kong investors trade in Singapore to significantly affect volume on Hong Kong holidays even though this trading is not sufficient to prevent an overall decline in trading volume. We find substantial support for the primary market volume correlation hypothesis, which states that the volume of trading of a firmÕs shares is correlated with the aggregate volume of trading on the primary market. The volume of trading in Jardine Group memberÕs shares was significantly related to the volume of trading on the HKSE prior to the switch and on the SES following the switch, supporting the view of Werner and Kleidon (1996) that cross-boarder order flow is segmented. References Baker, H.K., Johnson, M., 1990. A survey of management views on exchange listings. Quarterly Journal of Business and Economics 29, 3–20. Blass, A., Yafeh, Y., 2001. Vagabond shoes longing to stray: Why foreign firms list in the United States. Journal of Banking and Finance 25, 555–572. Christie, W.H.G., Huang, R.D., 1994. Market structures and liquidity: A transactions data study of exchange liquidity. Journal of Financial Intermediation 3, 300–326. Clyde, P., Schultz, P., Zaman, M., 1997. Trading costs and exchange delistings: The case of firms that voluntarily move from the American Stock Exchange to the Nasdaq. Journal of Finance 52, 2103– 2212. Cooper, I., Kaplanis, E., 1994. Home bias in equity portfolios, inflation hedging, and international capital market equilibrium. Review of Financial Studies 7, 45–60. Cowan, A.R., Carter, R.B., Dark, F.H., Singh, A.K., 1992. Explaining the NYSE listing choices of Nasdaq firms. Financial Management 21, 73–86. Domowitz, I., Glen, J., Madhavan, A., 1998. International cross-listing and order flow migration: Evidence from an emerging market. Journal of Finance 53, 2001–2027. Froot, K.A., Dabora, E.M., 1999. How are stock prices affected by the location of trade? Journal of Financial Economics 53, 189–216. Hewett, G., 1995. Jardines pulls off listing coup in Singapore, South China Morning Post. October 3 (This article is available from Reuters). Lim, S.N., 1995. All Jardine investors move shareholdings to SÕpore. Straits Times, January 3 (This article is available on Reuters).
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McInish, T.H., Wood, R.A., 1990. A transactions data analysis of the variability of common stock returns 1980–84. Journal of Banking and Finance 14, 99–112. Miller, D.P., 1999. The market reaction to international cross-listings: Evidence from depository receipts. Journal of Financial Economics 51, 103–123. Slovin, M.B., Sushka, M.E., 1993. Ownership concentration, corporate control activity, and firm value: Evidence from the death of inside blockholders. Journal of Finance 48, 1293–1321. Stulz, R., 1988. Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics 20, 25–54. Tse, Y., 1999. Round-the-clock market efficiency and home bias: Evidence from the international Japanese government bonds futures markets. Journal of Banking and Finance 23, 1831–1860. Werner, I.M., Kleidon, A.W., 1996. UK and US trading of British cross-listed stocks: An intraday analysis of market integration. Review of Financial Studies 9, 619–664.