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Exchange rate expectations and the pricing of Chinese cross-listed stocks

Listed author(s):
  • Eichler, Stefan

I show that the price discounts of Chinese cross-listed stocks (American Depositary Receipts (ADRs) and H-shares) to their underlying A-shares indicate the expected yuan/US dollar exchange rate. The forecasting models reveal that ADR and H-share discounts predict exchange rate changes more accurately than the random walk and forward exchange rates, particularly at long forecast horizons. Using panel estimations, I find that ADR and H-share investors form their exchange rate expectations according to standard exchange rate theories such as the Harrod-Balassa-Samuelson effect, the risk of competitive devaluations, relative purchasing power parity, uncovered interest rate parity, and the risk of currency crisis.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 2 (February)
Pages: 443-455

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:2:p:443-455
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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