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

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  • Wang, Xue
  • Yao, Lee J.
  • Fang, Victor

Abstract

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.

Suggested Citation

  • Wang, Xue & Yao, Lee J. & Fang, Victor, 2013. "Stock prices and the location of trade: Evidence from China-backed ADRs," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 677-688.
    • Handle: RePEc:eee:ecofin:v:26:y:2013:i:c:p:677-688
    DOI: 10.1016/j.najef.2013.05.002
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    Cited by:

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    2. Grossmann, Axel & Ngo, Thanh, 2020. "Economic policy uncertainty and ADR mispricing," Journal of Multinational Financial Management, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Location of trade; Investor sentiment; Financial market; China ADRs;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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