Abstract
This paper examines the dynamics of price transmissions between the South Korean shares and its American Depository Receipts (ADRs) for individual firms and a portfolio of all firms using a vector autoregressive (VAR) model in a cointegration framework. The results show a long-run cointegrating relationship among five pricing factors, namely the prices of Korean ADRs and their underlying shares, the Korean and the United States (US) market indices, and the exchange rate. Although the US market index is in the cointegrating vector, it is found to be an exogenous variable in the long-run. The short-term dynamics of the Korean portfolio returns are influenced by the deviation from the long-run equilibrium and the lagged changes of all pricing factors except for the exchange rate. On the other hand, its ADR portfolio returns are influenced by lags of its own returns, the US market return and changes in exchange rate. While innovations in the price of underlying shares explain a large portion of innovations in the ADRs for individual firms, shocks to the Korean and the US markets are more important at the aggregate level.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
