Cross listing: price discovery dynamics and exchange rate effects

The paper investigates the dynamics of price discovery for cross-listed firms and the impact of exchange rate shocks on firm value. A simple price discovery model is proposed in which prices in the home and foreign markets react to shocks on two latent prices, namely, the efficient firm value and the efficient exchange rate. I disentangle the effects on firm value from the exchange rate from the other determinants of a firm's cash flow. I use high-frequency data and find that a depreciation/appreciation of the home currency decreases/increases firm value. This finding is consistent with currency fluctuation affecting discount rates.