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A Further Investigation of Dynamic Information Transmission between DRs and Their Underlying Stocks with Exchange Rate Threshold Effects

Journal of Financial Studies

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Title A Further Investigation of Dynamic Information Transmission between DRs and Their Underlying Stocks with Exchange Rate Threshold Effects
 
Creator Kai-Li Wang
Jau-Rong Li
Meng-Jou Hsiao
 
Subject —
 
Description This paper investigates the transmission of stock price information between the underlying Taiwan stocks and their DRs’s markets by using daytime and overnight returns. We extend previous researches by considering the asymmetric thresholds of exchange rate shocks and the error-correcting processes. The empirical results indicate there exists a significant bi-direction return transmission between the domestic stocks and its DRs in the overnight and daytime process. The underlying stocks play a more considerable role in disclosing information and pricing discovery to DR markets. The asymmetric thresholds of exchange rate reaction are profoundly found in the return transmission mechanism, suggesting the benefit in allowing the asymmetric exchange rate responses toward the interactions across markets. What worth noticing is when the disequilibrium between local and foreign markets occurs, it relies on both markets acting in an adjusting role to restore the market equilibrium, suggesting that error correction process provides a better description to explain the adjustment process between DRs and their underlying stocks. In addition, a significant bidirectional relationship is found in volatility transmissions between overnight returns and daytime returns. Furthermore, the cross-market volatility transmission of daily returns from underlying stocks to foreign DR markets is more evident than vice versa.Key words: DRs, Underlying securities, Exchange rate threshold, Daytime returns, Overnightreturns, DCC-GARCH model
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Contributor —
 
Date 2011-03-03
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011034
 
Source Journal of Financial Studies; Vol 18, No 3 (2010); 93
財務金èžå­¸åˆŠ; Vol 18, No 3 (2010); 93
 
Language ch