| Summary: | 碩士 === 國立成功大學 === 財務金融研究所 === 94 === The dramatic growth rate of ADRs trading volume has been the evidence that increasing companies have chosen to use ADRs as a financial instrument for raising equity and pursue diversification benefits. We employ cointegration test and error-correction model to examine the long-run relationship between ADRs, underlying stock market index, and U.S. stock market index, investigate that whether ADRs are competent substitutes for foreign equities, and explore the return behaviors of ADRs. The results imply that ADRs are substitutes for corresponding stocks in the long run.
In our analysis, the mean spillover coefficients suggest a large impact of domestic index on the U.S. index. Namely, information generated from domestic market contributes more in ADRs valuation than from U.S. market. The finding is consistent with prior studies in that domestic market plays a dominant role on ADRs prices relative to the U.S. market. Our empirical results suggest that in Germany, Italy, and Netherlands, U.S. index return volatilities, domestic market index return volatilities, and covariance between U.S. and domestic market indices returns affect the return volatilities of ADRs. More important, the covariance between two markets contributes more in ADRs returns behavior.
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