Details

Autor(en) / Beteiligte

• Loureiro, Nuno Faustino

Titel

Dynamic Linkages Between Chinese ADRs and Underlying Stocks Returns

Ort / Verlag

ProQuest Dissertations & Theses

Erscheinungsjahr

2022

Link zum Volltext

• ProQuest

Quelle

ProQuest Dissertations & Theses A&I

Beschreibungen/Notizen

• American Depository Receipts, or ADRs, are negotiable certificates, issued by US depository banks, that represent a certain number of shares of a foreign company stock. Over the last few decades, the ADR market has grown, both in number and geographical diversification. As such, it becomes important to study this market.In this dissertation, we propose to analyze the dynamic linkages between American Depository Receipts (ADRs) and the corresponding underlying stocks returns. We will follow the paper by Patel (2015) and apply its methodology to Chinese ADRs currently listed on American stock exchanges, using daily closing prices from as far back as there is data on both ADR and underlying stock of each company, until the 20th of April 2022. In total, the sample is made up of 23 ADRs.For this study, we resort to the Dickey-Fuller unit root test, Johansen cointegration test, Granger causality test, vector error correction model, impulse response function and variance decomposition.The results of this study corroborate those of Patel (2015). Both ADRs and underlying stocks are stationary and display long-run equilibrium between the two. In addition, these assets display, in most instances, bidirectional Granger causality, as well as produce a positive effect in one another. Furthermore, a significant portion of each asset’s variance is explained by the other. All in all, both ADRs and underlying stocks are found to be major determinants of each other’s returns.Findings of this study could provide some valuable insights, namely for policy makers and investors. For investors, this study could provide some useful inside on whether ADRs allow for international diversification. For authorities, it could help highlight the importance of both markets, since if ADRs and underlying stocks display long-run equilibrium, both markets should be closely monitored.