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

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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

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

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1020635128988
Publisher site
See Article on Publisher Site

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.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 13, 2004

References

  • International Transfer of Pricing Information between Dually Listed Stocks
    Hauser, S.; Tanchuma, Y.; Yaari, U.
  • A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood cointegration Rank Test Statistics
    Osterwald-Lenum, M.

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