Information flows and the law of one price

Fan, R., Talavera, O. and Tran, V. ORCID: https://orcid.org/0000-0001-9561-8118 (2023) Information flows and the law of one price. International Review of Financial Analysis, 85. 102466. ISSN 1057-5219 doi: 10.1016/j.irfa.2022.102466

Abstract/Summary

This paper explores the role of information flows for the law of one price in an almost frictionless environment. Specifically, we examine whether the volume and content of social media messages are related to the exchange rate pass-through to prices of dual-listed stocks. Our sample includes 37 million Twitter messages mentioning the name of a UK-US cross-listed stock from 2015 to 2018. Using a high-frequency intraday data sample, we observe a negative (positive) link of volume (agreement). The findings suggest that large information flows and a high degree of disagreement add extra frictions for the law of one price. In addition, there is an asymmetric pattern of the pass-through, notwithstanding that there are no import/export or geographically-related frictions. This presents further evidence for the importance of information flows in understanding the law of one price.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/109407
Identification Number/DOI	10.1016/j.irfa.2022.102466
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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