Abstract:This study analyzes the process of price discovery for five Taiwanese American Depositary Receipts (ADRs) and their underlying foreign stocks. The empirical results reveal three previously undisclosed facts. First, ADRs provide price information during trading periods, and the closing prices of ADRs serve as guidelines for predicting the opening prices of the underlying Taiwan stocks. Second, the market index movements of ADR listing exchanges can explain the returns of ADRs and underlying stocks, but their in… Show more
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