||The issue of depositary receipt gets more attention in investors in recent year because of the explosion of Taiwan Depositary Receipt (hereafter, TDR) in Taiwan. The depositary receipts should equal to the value of primary listing stocks because they are represent the same value to a company. Therefore, we would discuss the price relationship between TDR and the primary listing stock it represents at first.|
In addition, because all the TDRs in Taiwan have the price spread (i.e. the price difference between TDRs and the primary listing stocks) with its original stocks, we discuss what the reasons to cause the price spread from a point of market segment. And we find it is because of liquidity, demand, information asymmetry, and stock price manipulation to lead to the price spread. After we takes market emotion into account, the market index has significant influence on price spread and individual investors also have a large influence on price spread.
Finally, we try to find that whether the market has the arbitrage opportunity from the price spread after we consider the transaction cost. And the result shows that when TDR is in discount, it really has the arbitrage opportunity in market after we use the close price as the transaction price. Furthermore, if we use the open price in the next day as the transaction price, it still has excess return in market, but the profit will be lower than the strategy using the close price as the transaction price.