Macroeconomic Drivers of Chinese ADRs: Home Country vs. US Effects

Abstract

The potential connections between macroeconomic variables and the stock market becomes less straightforward for shares issued in one country but traded in another. Whereas past work has suggested that cross-listed stocks respond to country-specific sentiment factors in the location of trade, in this article we show how Chinese ADRs also generally respond more to U.S. macroeconomic developments than to home-country influences. Following the application of Markov-switching analysis, we find that Chinese macroeconomic effects become relatively more important during times of crisis, however. Particularly large responses to Chinese macroeconomic variables are seen in the case of a Chinese closed-end fund that trades in the United States, but invests directly in Shanghai A-shares.