The dynamics of volatility transmission and information flow between ADRs and their underlying stocks |
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Authors: | Sunil S Poshakwale Katty Prez Aquino |
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Institution: | aSchool of Management, Cranfield University, Cranfield, Bedford, England MK43 0AL, United Kingdom;bBusiness School, University of Birmingham, Edgbaston, Birmingham, B15 2TT, United Kingdom |
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Abstract: | 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. |
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Keywords: | ADRs Volatility transmission Information flow GARCH Cross-listed stocks |
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