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Mistro


Total Posts: 29
Joined: Aug 2018
 
Posted: 2020-03-12 07:48
Let's say USD/GBP is trading at .75.

FB is listed on both US and London stock exchange.

Over the next 30 days Equity vol is 0, however USD/GBP moves to .80.

What happens to the FB price? Does FB on the london exchange move to reflect the new spread or does FB on the US exchange move?

The reason why I am asking this is I am trying to understand how information flow works. And how a change in the currency spot price changes the cross listed share prices.

Thank you


men lie, women lie, numbers don't

nikol


Total Posts: 1120
Joined: Jun 2005
 
Posted: 2020-03-12 16:35
Causality is the answer to your question. Establish lead-lag relationship for the triangle.

Mistro


Total Posts: 29
Joined: Aug 2018
 
Posted: 2020-03-12 19:38
Nikol, would mind going a little deeper with your answer?

men lie, women lie, numbers don't

nikol


Total Posts: 1120
Joined: Jun 2005
 
Posted: 2020-03-12 20:04
I am talking about tick level, i.e. high frequency.

Markets of FB-US , FB-UK and USD/GBP have different geo-locations, hence if US is leading (check volumes), then I expect UK to follow. FX is sort of independent (dependency is there but on different time scale).
ADDED: your location also matter.

Divergence observed at minute/hour+ scales has different nature, e.g. change of taxes, political (like hearings in EU-parliament) or even corona-skew. You must check differences in provisions behind stock issues in both jurisdictions.

Mistro


Total Posts: 29
Joined: Aug 2018
 
Posted: 2020-03-12 21:58
I am thinking of things on a much lower frequency.

So you are saying that if FB-US has more volume than FB-UK the flow is most likely to move from US to UK?

I am not to sure how to check how the flow is moving.

Below is a complete example to try and summarize my question.

USD/GBP at t0 = .75

FB-US at t0 = 133
FB-UK at t0 = 100


USD/GBP at t1 = .80 and Equity vol over the time period is 0

Scenario A)
FB-US at t1 = 125
FB-UK at t1 = 100

Scenario B)
FB-US at t1 = 133
FB-UK at t1 = 106.4

I hope this example tried to clear up my question.

men lie, women lie, numbers don't

nikol


Total Posts: 1120
Joined: Jun 2005
 
Posted: 2020-03-12 23:23
"Information flow" confused me, but still I am afraid you talk about lead-lag effect.

Choose the one with lowest volatility. Or make vol-weighted index. Or volume-weighted.
Fundamentally, flow should move around stock of home country of the company, i.e. in this case it is FB-US.

Not sure, if I understood you correctly. So, where this "flow" idea comes from? Maybe this will help in the discussion.
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