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A MULTIVARIATE COINT EGRATION ANALYSIS OF INTERNATIONAL DUALLY TRADED STOCKS Chuck C.Y. Kwok, Oliver Meng Rui, and Steven Shuye Wang1 ABSTRACT This paper examines if there is a long-run equilibrium relationship between dually traded stocks traded on the Stock Exchange of Hong Kong and the London Stock Exchange. The unit root test concludes that each price series is nonstationary in the levels but stationary after first differencing. Both stock prices on SEHK and LSE are tested for cointegration using both the Johansen procedure and Engle and Granger procedure. The cointegration analysis indicates that both stock prices on SEHK and LSE are cointegrated. The result of error correction model indicates that the adjustments to long-run equilibrium appear to be accomplished by stock prices of SEHK for some firms and by stock prices of LSE for some other firms. Some feedback exists between stock prices of two markets. The results imply that the domestic market does not act as the dominant market and the foreign market does not act as a satellite market either. Keywords : cointegration, dually listed stocks, multiple exchange listing 1 Chuck C.Y. Kwok, Department of International Business, University of South Carolina, Columbia, S.C. 29208 USA. Oliver Meng Rui, Corresponding Author, Associate Professor, Department of Accountancy, The Hong Kong Polytechnic University, Hong Kong, China. Steven Shuye Wang, Assistant Professor, Department of Accountancy, The Hong Kong Polytechnic University, Hong Kong, China. We thank participants at the Northern Financial Association annual conference, and the Financial Management Association annual conference for helpful suggestions and feedback. I. INTRODUCTION The globalization of the financial ma