Where Do the Leaders Trade?

Abstract

In the present paper we concentrate on the interaction and sharing of the information between the organized markets in the Czech Republic. Moreover, the interesting principal-agent problem between the Prague Stock Exchange (PSE) and RMS (over the counter system) is studied to identify the leaders and followers in the information transmission process. The analysis shows that new information penetrates through the main market of the PSE, and that RMS dominates on the segments with lower liquidity. The leading position of the PSE was confirmed via VAR models. Basically, a shock on the PSE affected all segments of both markets, while a shock to any segment of the RMS had an effect (if any) only on the corresponding segment of the PSE. Because of missing links between some market segments, we conclude that the PSE-RMS do not behave as one integrated market yet.