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Article

Price Discovery Study of Chinese ADRs on Global Markets

1College of Business, Houston Baptist University, Houston, United States

2Management College, Beijing Union University, Beijing, China


Journal of Finance and Economics. 2018, Vol. 6 No. 1, 32-37
DOI: 10.12691/jfe-6-1-5
Copyright © 2018 Science and Education Publishing

Cite this paper:
Yongli Luo, Changxian Lan. Price Discovery Study of Chinese ADRs on Global Markets. Journal of Finance and Economics. 2018; 6(1):32-37. doi: 10.12691/jfe-6-1-5.

Correspondence to: Yongli  Luo, College of Business, Houston Baptist University, Houston, United States. Email: yluo@hbu.edu, gltchangxian@buu.edu.cn

Abstract

This paper analyzes the price discovery mechanism between the Chinese American Depository Receipts (ADRs) listed on the New York Stock Exchange (NYSE) and their underlying H shares on the Hong Kong Stock Exchange (HKEX). It employs the Permanent-Transitory decomposition in vector autoregression (VAR) model, and finds that the New York stock market makes the principal contribution to the price discovery, and the proportion of contribution is 84.84%; while the Hong Kong market makes only subsidiary contribution of 15.16%. In addition, it confirms the existence of the long-term cointegration relationship between ADRs and H shares, which implies that portfolio diversification among Chinese ADRs is consistent with Global Center Hypothesis and efficient for international investors.

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