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American depositary receipts: Asia-Pacific evidence on convergence and dynamics

Haiqiang Chen, Choi, "Paul" Moon Sub and Hyunseob Kim

Journal of Multinational Financial Management, 2008, vol. 18, issue 4, 346-368

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.

Date: 2008
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Handle: RePEc:eee:mulfin:v:18:y:2008:i:4:p:346-368