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

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  • Eichler, Stefan

Abstract

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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  • Eichler, Stefan, 2011. "Exchange rate expectations and the pricing of Chinese cross-listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 443-455, February.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:2:p:443-455
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    Cited by:

    1. Rövekamp, Ingmar & Eichler, Stefan, 2016. "A market-based indicator of currency risk: Evidence from American Depositary Receipts," Annual Conference 2016 (Augsburg): Demographic Change 145791, Verein für Socialpolitik / German Economic Association.
    2. Congsheng Wu, 2014. "Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 627-649, October.
    3. Ilya Prakhov, 2017. "Determinants of Expected Return on Higher Education in Moscow," Educational Studies, Higher School of Economics, issue 1, pages 25-57.
    4. repec:eee:mulfin:v:42-43:y:2017:i::p:74-94 is not listed on IDEAS
    5. Sarkissian, Sergei & Schill, Michael J., 2012. "The nature of the foreign listing premium: A cross-country examination," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2494-2511.
    6. repec:eee:intfin:v:51:y:2017:i:c:p:1-14 is not listed on IDEAS

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