Capital Market Information Transfer and Integration: The Case of Securities Dual-Traded in the U.S. and Canada

LeRoy D. Brooks and Yiu Keung Ip

The issue of price parity and possible inferences on the level of market integration are examined. Law of one-price tests are performed on prices of identical securities traded in the United States and Canada. Additionally, Granger causality tests and Akaike's minimum error criterion enable evidence on the existence of price correspondence between two markets. Inconclusive evidence is found by using the law of one-price rule. Causality tests appear more robust. They enable conclusions on existence of information and valuation symmetry. Results are consistent with integrated Canadian and U.S. capital markets.