Multi-market trading, price delay, and return predictability

Chuanxin Xia, Nien-Tzu Yang, Chaonan Lin and Kuan-Cheng Ko

Finance Research Letters, 2021, vol. 40, issue C

Abstract: Based on a setting of multi-market trading that involves American Depositary Receipts (ADRs) and underlying equities, we develop measures of price delay to capture the return predictability for both ADRs and the underlying equity markets. We show that ADRs with the severest price delay in responding to underlying equities command a remarkably high premium. The price delay of underlying equity in responding to corresponding ADR returns also positively predicts future returns of the equity. We further document evidence that limits to arbitrage explain the price delay premia in both markets.

Keywords: Price delay; ADRs; Underlying equity; Return predictability; Arbitrage risk (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612320300295
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320300295

DOI: 10.1016/j.frl.2020.101730

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().