Return Transmissions between ADRs and A-Shares of Dual-Listed Chinese Firms

摘要

Many Chinese firms are dual-listed in both China and U.S. The U.S. listing takes the form of American Depositary Receipts (ADRs) while the Shanghai listing takes the form of A-shares. Though ADRs and their underlying A-shares lack full fungibility due to regulatory constraints, they nevertheless represent the same claiming rights and hence should be affected by the same fundamentals. Several questions naturally arise: 1) How do returns of ADRs and A-shares affect each other? 2) Which market dominates in terms of price discovery? 3) How has the recent global financial crisis affected the return transmission dynamics? This study attempts to shed some lights on these questions using a rigorous statistical method called bivariate vector auto-regression (VAR) model. We also account for the non-synchronous trading problem caused by the fact that the two markets are located in different time zones and that the two market observe different national and religious holidays.