Information Flows across Markets: Evidence from China–Backed Stocks Dual–Listed in Hong Kong and New York

Using a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, we examine patterns of information flows for China–backed stocks that are cross–listed on exchanges in Hong Kong and New York. Results analyzing the dual–listed stocks indicate significant mutual feedback of information between domestic (Hong Kong) and offshore (New York) markets in terms of pricing and volatility. Stocks listed on the domestic market appear to play a more significant role of information transmission in the pricing process, whereas stocks listed on the offshore market play a bigger role in volatility spillover.     

National cultural effects on leverage decisions: Evidence from emerging-market ADRs

We examine leverage decisions in the context of national culture over the 1996–2010 period. Cultural characteristics can explain capital structure decisions from emerging-markets cross-listings. The results show that firms from countries with high Individualism and Indulgence employ more debt. Firms located in countries with high Power Distance, Masculinity, Uncertainty Avoidance, and Long-term Orientation are less leveraged. Additionally, Exchange-traded and capital-raising ADRs are more likely to be from countries with weaker corporate governance. Univariate tests show that capital-raising ADRs employ less debt relative to non-capital-raising ADRs, and notably, in the post-cross-listing period. Interestingly, the home country's cultural characteristics of capital-raising and exchange-traded ADRs exert less influence on their capital structure decisions. Our findings suggest that there is a value discount associated with increased firm leverage. Our insights have practical implications for portfolio managers attempting to enter emerging markets through the use of ADRs. Moreover, investors can evaluate the often neglected effect of cultural values into firm performance.     

Contemporaneous ADR pricing: intraday dynamics during overlapping trading hours

We contribute to the literature by identifying and accurately measuring the drivers of American depositary receipt (ADR) returns contemporaneously across various global time zones. We consider ADRs as two inherently distinct asset classes – stocks and currencies – bundled into one. Throughout, we use a relatively refined, focused, and synchronized minute-by-minute data set on ADRs and all other variables. ADRs from all countries with regular trading hours that overlap with those of the US are considered individually and in clusters. We analyze the interplay of several factors that influence ADRs pricing patterns. Further, we investigate whether such patterns vary by currency, ADR, industry, and emerging/developed market classifications. Our findings indicate that synchronized returns on underlying shares comprise 68.5–74% of the explained returns in ADRs. The remaining 31.5–26% of returns are generated by movements in currency rates. These results are robust across the several models and estimation methods employed. Our findings also show persistent small price discrepancies between ADRs and dollar-adjusted underlying shares on a minute-by-minute basis, implying possible arbitrage opportunities. However, we conclude that trading and ADR conversion costs render such opportunities unattractive.     

The dynamics of volatility transmission and information flow between ADRs and their underlying stocks

This research examines the dynamics of volatility transmission and information flow between ADRs and the underlying stocks. Using a bivariate GARCH model with BEKK parameterisation, the study investigates how changes in volatility in the ADR market affect the volatility in the underlying equity market and vice versa. The findings suggest a bidirectional volatility transmission and information flow between the ADR and underlying stock markets. ADRs and underlying stocks respond to their own innovations as well as to the innovations in each other's market. The findings are consistent for all countries in the sample as well as for different sub-periods. The evidence suggests that the differences in synchronicity of trading period between the US market and other developed markets included in the sample has had no effect on the volatility transmission and information flow between ADRs and underlying stocks.     

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

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.     

American depositary receipts: An analysis of international stock price movements

With significant increases in private capital flows across the globe, there has been a rise in the US listing of foreign stocks as American depositary receipts (ADRs). In this study, we employ cointegration techniques and estimate error-correction (EC) models to examine the degree of integration between US and three foreign equity markets. We find that ADRs are cointegrated with ordinary shares trading in the UK, Japan, and Germany, which implies that for long-term investors, they are a substitute for ordinary shares. Our analysis of the dynamic relationships between ADRs and foreign equities suggest that both markets contribute information pertinent to portfolio valuation. However, the foreign markets are found to be the more important source of information.     

Determinantes microeconómicos del acceso al financiamiento externo de la estructura de capital de empresas del sector industrial

The aim of this paper is to analyze using an econometric panel data model, for fixed and random effects, microeconomic determinants of access to external financing that affect the capital structure of companies in the industrial sector, which were listed on the Mexican Stock Exchange (BMV) in 2000-2010, in order to demonstrate that the international financial crisis of 2007, modifies the relationship between these determinants and capital structure, which explains the changes in the policy of foreign currency funding that followed these companies. The findings show that export firms, issuers of ADRs (American depositary receipts) and the big large are finance in foreign currency before the crisis, and after it, only export firms and issuers of ADRs, although in a higher proportion export firms, which shows that to have better way to solve their problems of asymmetric information with your creditors, to have good collaterals in accounts receivable in foreign currency, and give investors a positive sign of a good economic situation, attained to continue financing in foreign currency despite the crisis.     

Stock prices and the location of trade: Evidence from China-backed ADRs

This study examines whether the trading location affects equity returns of China-backed American Depository Receipts (ADRs) traded in the US. If International Financial Markets are integrated, stock prices should be affected only by their fundamentals; otherwise, stock prices may also be affected by their trading locations/investor sentiment. We find that China ADRs’ returns are affected more by the US market fluctuations than by Chinese market returns. We interpret the results as suggesting that International Financial Markets are at least partially segmented and country-specific investor sentiment affects stock prices.     

USING THRESHOLD COINTEGRATION TO EXAMINE ASYMMETRIC PRICE ADJUSTMENTS BETWEEN ADR'S AND THEIR UNDERLYING SECURITIES - THE CASE OF TAIWAN

Many recent studies have focused on the relationship between American Depository Receipts (ADRs) and their foreign underlying stocks, because of the price interaction and arbitrage opportunities provided by the dual listings. The cointegration and its corresponding error correction model employed in some recent studies assume that the tendency to move towards a long‐run equilibrium is present all the time. However, the presence of costs of adjustments may prevent economic agents from adjusting continuously. As an extension of previous studies, this paper applies the threshold cointegration model that allows for asymmetric adjustment towards a long‐run equilibrium to inspect the linkage between Taiwanese ADRs and their underlying shares. By employing the threshold error correction model, the short‐term adjustments also are examined. We find some evidence of asymmetric adjustments in our data. The tests for asymmetries are also implemented with the maximum likelihood estimation for the complete multivariate threshold cointegration model instead of the univariate model.