| Summary: | 碩士 === 淡江大學 === 財務金融學系 === 89 === This paper extends previous research by considering three pricing factors for American Depository Receipts(ADRs):the price of underlying shares in Taiwan, the relevant exchange rate(NT$/US$), and the US market index(Nasdaq). Using both a vector autoregressive(VAR) model with a cointegration constraint and a seemingly-unrelated regression(SUR) approach, we examine the relative importance of, and the speed of adjustment of ADR prices to, these underlying factors. Our results show that the price of ADRs are very sensitive to the price of underlying shares and the US market index, and the price response of ADRs are positive. The nature of ADRs reactions to innovations in the exchange rate appears to differ fundamentally from other pricing factors, the price response of ADRs are negative and smaller. The conjecture of a trading rule based on the regressions reveals that risk-adjusted excess returns earned by the trading rule are not large enouge to cover the transactions costs most trader would incur. But we can arbitrage between ADRs and their underlying shares.
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