| dc.description.abstract | Cross-border listing has gained currency over the past few decades as many companies
become international in orientation. This has further been compounded by technological
progress and trade liberalization.
East African economies have not been left behind in this feat and over the last 4 years,
three companies namely East African Breweries Limited, Kenya Airways and Jubilee
Holdings have had their shares cross-listed in the East African Stock Exchanges. Such
developments could portend investing opportunities for both individual investors and
institutional investors through trading in cross-listed stocks or availing shares of
companies to trade in multiple exchanges with the attendant opportunities for risk
diversification. It is against such a background that the researcher set to investigate the
existence arbitrage opportunities for investors by trading in cross-listed stocks in East
Africa.
The objective of the research paper was, therefore, to investigate whether an investor can
make abnormal returns (arbitrageprofits) by trading on an identical share of a cross-listed
company at the NSE, USE or DSE simultaneously.
To realize the research objective, the study set to investigate whether there are significant
differences in the prices of a similar company's share in any of the exchanges which
could trigger an arbitrage process.
The results from the study revealed that at the aggregate level, there existed no arbitrage
opportunities in trading in cross-listed stocks in the East African Stock markets, although
some stocks exhibited arbitrage potential in the first few years after cross-listing.
The researcher, therefore, concludes that taken on aggregate basis, a well financed and
knowledgeable finance manager or investor cannot make arbitrage profits by trading in
cross-listed stock's shares in East Africa. The findings of the study are consistent with
those of a study that was conducted.by Noronha, Sarin and Saundagaran (1996). They
found that no measurable differences daily weighted-average spread exists for U.S firms
after listing in London or Tokyo.
The researcher wish to note that the conclusion drawn from the study can be tempered
with or should be taken with caution because of the limitations to the study such as: small
sample size of the cross-listed stocks studied, therefore, limiting generalisation of
findings and that the study did not test the relevance of other factors necessary for
arbitrage process such as the degree stock turnover and market liquidity. | en |
