Arbitrage and Spread Trading of Taiwan-related ADRs

• Main Authors: Li-Hsiang Wu, 吳禮祥
• Other Authors: Chau-Chen Yang, Ph.D
• Format: Others
• Language: zh-TW
• Published: 2000
• Online Access: http://ndltd.ncl.edu.tw/handle/76047970431220564621

碩士 === 國立臺灣大學 === 財務金融學研究所 === 88 === American Depositary Receipts (ADRs) are negotiable U.S. securities that generally represent a non-U.S. company''s publicly traded equity. For various reasons, several Taiwan-listed companies have sponsored and listed their equities on the U.S. stock exchanges in the form of depositary receipts. This thesis analyzes the market potential for Taiwanese firms to issue ADRs, demonstrates the correlation between the price movement of listed ADRs and that of underlying common stocks, and explores cross-market arbitrage/spread trading derived from the price asymmetry between Taiwan-related ADRs and their common stocks. This thesis illustrates that the price movement of Taiwan-related ADRs and underlying common stocks are statistically correlated, and most of the time common stocks lead ADRs in price moves. These are in line with market expectation as both types of securities theoretically bear the same rights as well as obligations. However, the price gaps between both could be enormous in some cases, providing savvy investors with great arbitrage/spread trading opportunities. Evidence shows that foreign institutional investors have been actively trading the spreads of Taiwan issues. This thesis is expected to help, to a certain degree, unveil the mystery of foreign investor''s investment in Taiwan.