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Price Transmission Effect between GDRs and Their Underlying Stocks--Evidence from Taiwan

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  • Chen, Shen-Yuan
  • Chou, Li-Chuan
  • Yang, Chau-Chen

Abstract

In this paper we examine the price transmission effect between ADRs or GDRs and their respective underlying stocks. This linkage is investigated for Granger causality using difference form and VECM. Results reveal unidirectional causality from Taiwan's capital market to the foreign market. This asymmetry suggests the domestic market plays a dominant role in price transmission relative to the foreign market. Besides, the prices of both markets will make adjustment to establish a long run cointegrated equilibrium. An additional finding is that both the premium and net buy have significant impacts on international price transmission for over twenty percent samples. Empirical outcomes also provide the evidence that our model is quite robust. Copyright 2002 by Kluwer Academic Publishers

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  • Chen, Shen-Yuan & Chou, Li-Chuan & Yang, Chau-Chen, 2002. "Price Transmission Effect between GDRs and Their Underlying Stocks--Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 19(2), pages 181-213, September.
    • Handle: RePEc:kap:rqfnac:v:19:y:2002:i:2:p:181-213
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    Cited by:

    1. Chih-hsiang Hsu & Ming-sung Kao & Wei-pen Tsai, 2014. "Information Transmission between Dual Listed Stocks with Non-Overlapping Trading Hours," Economics Bulletin, AccessEcon, vol. 34(3), pages 1733-1741.
    2. Bhattacharjee, Kaushik & Bang, Nupur Pavan & Mamidanna, Sravya, 2014. "Transmission of pricing information between level III ADRs and their underlying domestic stocks: Empirical evidence from India," Journal of Multinational Financial Management, Elsevier, vol. 24(C), pages 43-59.
    3. Alma Hales, 2015. "Liquidity and price discovery in Latin America: evidence from American depositary receipts," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 661-678, October.

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