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Transmission of pricing information between level III ADRs and their underlying domestic stocks: Empirical evidence from India

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  • Bhattacharjee, Kaushik
  • Bang, Nupur Pavan
  • Mamidanna, Sravya

Abstract

This 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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  • Bhattacharjee, Kaushik & Bang, Nupur Pavan & Mamidanna, Sravya, 2014. "Transmission of pricing information between level III ADRs and their underlying domestic stocks: Empirical evidence from India," Journal of Multinational Financial Management, Elsevier, vol. 24(C), pages 43-59.
    • Handle: RePEc:eee:mulfin:v:24:y:2014:i:c:p:43-59
    DOI: 10.1016/j.mulfin.2013.12.001
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    More about this item

    Keywords

    ADRs; Information transmission; Co-integration; Market-efficiency;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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