A cointegration analysis of price diffusion amid ADRs and dually listed Indian stocks

S. Visalakshmi, P. Lakshmi, Kavitha Shanmugam and K. Kesava Prasad

International Journal of Business Innovation and Research, 2016, vol. 11, issue 3, 345-362

Abstract: The aim of this study is to provide empirical support to global investors who are intending participation in stock markets using American Depositary Receipts (ADRs) as the investment vehicle. This study explores the degree of integration between ADRs and dually listed Indian Stocks using daily data for the period from January 2001 to May 2012. Further, the dynamics of price diffusion between the ADRs of Indian stocks pertaining to telecommunication sector cross listed in the US markets is examined by applying econometric tools like cointegration test, vector error correction model and Granger causality test. The findings reveal that both long run cointegration relationships and short run causality relationships exist between domestic stock price series and ADR prices. Further, we find evidence of strong error correction of ADR open and close to domestic stock open and close prices, and weak error correction of domestic market open index returns to foreign market open index returns. This implicates that ADRs appear to overreact to the US market index but underreact to changes in underlying share prices.

Keywords: cross listing; short run relationships; long run relationships; VECM; NYSE; NIFTY; cointegration analysis; price diffusion; ADRs; India; stock markets; American depositary receipts; dual listing; price diffusion; telecommunications industry; USA; United States; econometrics; share prices. (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=78871 (text/html)
Access to full text is restricted to subscribers.

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:ids:ijbire:v:11:y:2016:i:3:p:345-362

Access Statistics for this article

More articles in International Journal of Business Innovation and Research from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().