An Analysis of The Dynamic Properties of The American Depositary Receipt Cross Market Premium

Authors

Jorge Vidal, University of Texas-Pan American

Date of Award

12-2011

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Dr. Teofilo Ozuna

Second Advisor

Dr. Alberto Davila

Third Advisor

Dr. Cynthia Brown

Abstract

The American Depositary Receipt (ADR) cross-market premium is studied over a 20 year period. The dynamic properties of the cross-market premium are studied for the first time in a nonlinear smooth error correction framework using a smooth transition error correction model (STECM) and compared against a linear model and two other nonlinear model specifications. The results indicate the ADR cross-market premium is more appropriately estimated when the nonlinearity, smooth transition, and cointegration properties present in the premium are estimated simultaneously with a STECM. The estimates of the STECM indicate arbitrage opportunities in the ADR market are rare and dissipate quickly. The forecasting properties of the STECM are found to be superior to that of the linear model using the squared error prediction error as the criterion. The impact of the 2007 – 2009 financial crisis over the ADR cross-market premium is analyzed by constructing a cross-market premium index. It is found that the financial crisis increased the volatility of the cross-market premium during the crisis and receded after the crisis passed.

Comments

Copyright 2011 Jorge Vidal. All Rights Reserved.

https://www.proquest.com/dissertations-theses/analysis-dynamic-properties-american-depositary/docview/922578222/se-2

Granting Institution

University of Texas-Pan American