Transmission of pricing information between level III ADRs and their underlying domestic stocks: Empirical evidence from India
AbstractThis paper studies the price interdependence and transmission pattern between a group of level III American Depository Receipts (ADRs) and their respective underlying stock prices in India. We investigate the transmission dynamics of pricing information between the ADRs and their underlying stocks. Using a Vector Error Correction Model (VECM) with error correction terms, we find bidirectional transmission of price information flow between the ADRs and their underlying stocks. Our results provide evidence of bidirectional causality between the National Stock Exchange and the NASDAQ/New York Stock Exchange. We find that the ADRs tend to overreact to their own lagged price changes and tend to underreact to the lagged price changes in the underlying domestic stocks.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Multinational Financial Management.
Volume (Year): 24 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/mulfin
ADRs; Information transmission; Co-integration; Market-efficiency;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G1 - Financial Economics - - General Financial Markets
- G3 - Financial Economics - - Corporate Finance and Governance
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