Abstract
This study explores the convergence between the prices of American Depositary Receipts (ADRs) listed by Asia-Pacific firms and their original shares listed on home exchanges. Instead of relying on conventional parametric approaches that carry embedded model-specification errors, we contribute to the literature by introducing a nonparametric technique to estimate the convergence speed parameter. We present the time-varying characteristics of both firm and country-level convergence speed parameters. Furthermore, we empirically verify and visually corroborate the comparative dynamics of convergence with respect to short sales restrictions, trading time differences, and market-tier measures proxied by the Morgan Stanley Capital International indices. We conclude that enhancement in market efficiency accelerates the reversion to the parity of ADR-pairs.
| Original language | English |
|---|---|
| Pages (from-to) | 346-368 |
| Number of pages | 23 |
| Journal | Journal of Multinational Financial Management |
| Volume | 18 |
| Issue number | 4 |
| DOIs | |
| State | Published - Oct 2008 |
Bibliographical note
Funding Information:We would like to thank Ike Mathur (the editor), Warren Bailey, Arturo Bris, Charles Chang, José Fillat, Yongmiao Hong, Seth Huang, Ming Huang, Nicholas Kiefer, Lawrence Kryzanowski, Tapan Mitra, David Ng, Jae-Ho Yun, and conference participants in the 2007 Midwest Economics and Finance Associations joint annual meeting in Minneapolis, MN, the 2007 INFINITI Conference on International Finance in Dublin, Ireland, and the 2007 Asian Finance Association and Financial Management Association annual meeting in Hong Kong for useful discussion and feedback. Choi and Kim have been supported by Kwanjeong Educational Foundation Grants 03112BUS044, 0422USD012, and 052USM007.
Keywords
- American depositary receipts
- Nonlinear convergence
- Nonparametric estimation