Journal of International Financial Markets, Institutions and Money 12 (2002) 201 – 215 Price discovery and the international flow of information John S. Howe a , Kent P. Ragan b, * a Uniersity of Missouri -Columbia, USA b Department of Finance and General Business, Southwest Missouri State Uniersity, 313 Glass Hall, Springfield, MO 65804, USA Received 5 December 2000; accepted 9 July 2001 Abstract We document that the opening volatility of American depositary receipts (ADRs) is lower when the trading of the underlying asset overlaps trading of the ADR on the New York Stock Exchange (NYSE). This lower volatility is consistent with the notion that price discovery on the NYSE is enhanced by concurrent trading in the underlying market. We also find that ADR volatility does not change when the underlying market closes, indicating that there is no significant change in the flow of public and private information at that time. This finding suggests that the NYSE becomes the dominant market during periods when both ADRs and their underlying assets are traded. © 2002 Elsevier Science B.V. All rights reserved. Keywords: Price discovery; Information flow; American depositary receipts JEL classification: G12; G14; G15 www.elsevier.com/locate/econbase 1. Introduction Hasbrouck (1995) defines price discovery as ‘…the impounding of new informa- tion into the security price…’ and asserts that price discovery is ‘…arguably one of the most important products of a security market’ (p. 1175). The price path that a security follows is determined by the flow of information in the financial markets and how market participants use that information. This study provides evidence of * Corresponding author. Tel.: +1-417-836-5580; fax: +1-417-836-6224. E-mail address: kentragan@smsu.edu (K.P. Ragan). 1042-4431/02/$ - see front matter © 2002 Elsevier Science B.V. All rights reserved. PII:S1042-4431(02)00003-3