Why Sale Of Royal Dutch Petroleum Co. And Shell Transport & Trading Co

Decent Essays
Group 13
Pamela Castanon
Daniel Gage
Adriana Tomaylla
Gonzalo Lopez
Agam Josan
WSJ Report 2

Why should shares of Royal Dutch Petroleum Co. and Shell Transport & Trading Co. trade "lock step with one another"? What does this suggest about market efficiency?

In 1907 both companies agreed to combine interests while remaining separate entities, and as a result they share both profits and dividends. However, the divergence between the two companies suggests that there is semi strong market efficiency because there are arbitrage opportunities, most likely due to insider information.

What are some of the explanations given in the article for why one company has traded at a premium over the other over time? Explain how these factors affect stock values.

Royal Dutch Co. and Shell have combined interests and share the same profits and dividends. However, they exist as separate entities and have distinct stock. Theoretically their stock should trade at the same price, yet one usually trades at a premium over the other. The article explains that this has happened in the past is because throughout the 1970’s Britain imposed limits on dividends. This caused Shell, which is traded on the London Stock Exchange, to be an unattractive stock as it limited capital gains from dividends. Instead investors opted for Royal Dutch, which is traded on the Amsterdam Stock Exchange, because it was not subject to the same limits. As a result, Shell’s stock was least valuable. Later, in 1979
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