ADRs 是可轉讓的憑証，代表擁有外國公司憑証歸屬和在美國股市交易的股票被換。作為一個潛在的選擇到直接投資在外國股票，ADRs 有為國際多樣化的成為的普遍的工具。在我們的研究中，我們集中於價格傳輸機制在ADR 之中，它的定價因素並且ADRs 的全球性多樣化作用。

ADRs are negotiable certificates,which represent the ownership of foreign corporations and are traded in the U.S stock market. As a potential alternative to direct investment in foreign stocks,ADRs have become popular tools for international diversification. In our paper,we focus on the price transmission mechanism amongst the ADR and it’s pricing factors as well as the global diversification effect of ADRs. Specifically,three topics are examined in our paper﹕
First we apply several multiple regression models to identify what factors affect ADR returns and the returns on underlying stocks. These factors we used to incorporated included foreign exchange rate, S&P 500 Index and world Index. Due to possible common factors not incorporated in our models, we apply SUR to yield more robust results.
Second, we apply VAR to investigate how ADR returns and returns on underlying stocks interrelated and augmented by lagged U.S. equity index and world index on a daily basis.
Finally, we apply vector-error-correction model to investigate how ADR returns and returns on underlying stocks interrelated with deviations from long run relationships. We first implement Augmented Dickey-Fuller tests to see if they are integrated of the same order. The residuals are then used as error-correcting terms for VECM. Due to the fact that these markets do not close synchronously, VECM with different error correcting terms documented in this study does provide important information regarding how ADR or stock returns react to the deviations from the long-run equilibrium.

1. Introduction 7

2. Literature review 12
2.1 Tests of the ICAPM 12
2.2 International diversification 14
2.3 Dynamic linkages between national stock markets 15

3. Data …………………………………………………………………………….19

4. Methodology 21
4.1 Examining the cointegrating relationship between ADRs and underlying foreign securities 21
4.2 Examining the dynamics of the price transmission between ADRs and the three pricing factors﹕underlying stocks,foreign exchange rates,S&P 500 Index 22
4.3 Examining the risk characteristics and the global diversification effect of ADRs 22
4.4 Vector Autoregression (VAR) of ADR return and underlying stock return
23
4.5 Seemly unrelated regression (SUR) 24
4.6 Vector error -correction models (VECM) 24

5. Empirical results 26

6. Conclusion 44

Reference…… 46




Table Contents

Table 1 Countries and companies in sample……….......................................................20
Table 2 ADR returns regressed on foreign stock portfolio return and exchange rate change 27
Table 3 Foreign stock portfolio return regressed on lagged ADR portfolio return and lagged exchange rate change 29
Table 4 ADR return regressed on underlying stock return, exchange rate change, S&P 500 index return and world index return 31
Table 5 ADR return regressed on underlying stock return, exchange rate change, S&P 500 index return and world index return using SUR 33
Table 6 VAR analysis of ADR returns and returns on underlying stocks 36
Table 7 Augmented Dickey-Fuller unit root tests for residuals of regressions of ADR and stock pricies 40
Table 8 Vector error correction models (VECM) of ADRs and the underlying stocks...................................................................................................................43

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