Return and Volatility Intra-Day Transmission of Dually-Traded Stocks: The Cases of Taiwan, Korea, Hong Kong, and Singapore

The paper applies the two-stage GJR-GARCH model to investigate the intra-day return and volatility transmission behavior between ADRs and their underlying stocks using data from Japan, Taiwan, Korea, Hong Kong, and Singapore. Empirical results show that the return transmission of ADRs and their underlying stocks from Japan, Taiwan, Korea, Hong Kong, and Singapore companies is bi-directional. The return spillover effect from underlying stocks to ADRs is stronger than that from ADRs to the underlying stocks. In addition, the volatility spillover between underlying stocks and ADRs is significant but not bi-directional. The volatility spillover effect from underlying stocks to ADRs is more significant. This result indicates that the local market is acting as the dominant market while the foreign market is acting as a satellite. Empirical results also show that all the underlying daytime stock returns have significant positive spillover effects on the subsequent ADR daytime returns. On the other hand, the ADR daytime returns have no significant spillover effect on the subsequent underlying stock returns. This result implies that the American market does not immediately incorporate all the information from local prices; instead there is a delayed reaction.