Liquidity and price discovery in Latin America: evidence from American depositary receipts

Alma Hales ()

Journal of Economics and Finance, 2015, vol. 39, issue 4, 678 pages

Abstract: This study provides a comprehensive examination of price discovery for American Depositary Receipts (ADRs) originating in Latin America. Using data on 87 ADR issues from Latin America, the empirical approach allows for an endogenous role of exchange rate fluctuations in the price discovery process. The results indicate that while exchange rates are not primarily determined by stock market prices, there is significant flow of information from the stock market to currency markets particularly in Brazil and Mexico. In addition, the results reveal a mix of price discovery locations across Latin America. The conventional finding that the home market matters most for price discovery holds only for Chile. For ADRs from Brazil, the home and U.S. markets contribute equally to price discovery while the U.S. market dominates in price discovery for ADRs from Argentina and Mexico. Results from a cross-sectional analysis indicate that higher levels of illiquidity at home are consistent with higher contributions to price discovery from the U.S. market. Copyright Springer Science+Business Media New York 2015

Keywords: American depositary receipts; Latin America; Price discovery; Liquidity; G1; G15 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s12197-013-9270-2

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