00Thaler_FM i-xxvi.qxd

Table

3.4

SmithKline Beecham Price Differentials and Market Movements

This table reports regressions estimates of the equation:where

rSKA

−SKB,

is the difference between the log returns of SmithKline Beecham A shares (London) and E shares (New York); S&P andt

FTSE, are returns on the S&P and

Financial Times

Allshare index, respectively, expressed in their native currencies; and $/£ represents

log changes in the dollar-to-pound exchange rate. Specification 1 includes leads and lags (shown above) to allow for nonsynchron

ous

trading. Specification 2 employs a more restricted set of leads and lags (based on actual time differentials). Specifications 3 a

nd 4 are the

same as Specifications 1 and 2, but include a lagged dependent variable on the right-hand side. Durbin’s Alternate H (DAH) is re

ported

in place of the Durbin–Watson (DW) statistic for Specifications 3 and 4. Specifications 5–8 employ 2-, 5-, 15-, and 50-day return

s. For

these specifications, leads and lags of independent variables are dropped. All regressions are OLS, with standard errors that al

low for se-

rial correlation and heteroskedasticity. Where there is only a single coefficient, standard errors are in parentheses.

Return DW or

Lagged

Specification

Horizon

R

2

DAH

DOF

Dep. Var.

S&P

FTSE

$/£

1, 7/89–12/95

1 day

0.221

2.70

1665

−

0.270

c

0.291

c

0.119

c

2, 7/89–12/95

1 day

0.216

2.69

1668

−

0.390

c

0.390

c

0.215

c

3, 7/89–12/95

1 day

0.311

−0.54

c

1665

−

0.335

c

−

0.508

c

0.458

c

0.212

c

4, 7/89–12/95

1 day

0.307

−0.43

c

1667

−

0.318

c

−

0.541

c

0.365

c

0.214

c

5, 7/89–12/95

2 days

0.118

2.70

834

−

0.466

c

0.409

c

0.184

c

rS

P

FTSE

titi

i

jtj

j

ltl t

l

SKA SKB,

$/£

−+

=−

+

=−

+

=−

=+

∧ +

+

+

∑∑ ∑

αβ

δ

γ

ε

1 1

1 1

1 1