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Volatility and Mean Spillover of Chinese ADRs at New York Stock Exchange

Zhang, Hui and Gao, Yuanjing (2008)
Department of Economics
Abstract
This paper examines how the returns and volatility of Chinese ADRs listed at NYSE are affected by their host market (US), underlying market (Hong Kong) and local market (Shanghai). Using a GARCH spillover model and data from 1 January 2002 to 30 September 2007, we find that the volatility spillover from US (host market), Hong Kong (underlying market) and Shanghai (local market) to Chinese ADRs, following the order: Hong Kong > US > Shanghai which can also be reflected in variance ratios. The increasing impact from host market and local market may attribute to strengthened integration between Chinese market and world market after China entered WTO. For US investors, they may need to be more prudent in diversification by using Chinese ADRs.... (More)
This paper examines how the returns and volatility of Chinese ADRs listed at NYSE are affected by their host market (US), underlying market (Hong Kong) and local market (Shanghai). Using a GARCH spillover model and data from 1 January 2002 to 30 September 2007, we find that the volatility spillover from US (host market), Hong Kong (underlying market) and Shanghai (local market) to Chinese ADRs, following the order: Hong Kong > US > Shanghai which can also be reflected in variance ratios. The increasing impact from host market and local market may attribute to strengthened integration between Chinese market and world market after China entered WTO. For US investors, they may need to be more prudent in diversification by using Chinese ADRs. However, there is relatively weak mean spillover from US (host market), Hong Kong (underlying market) and Shanghai (local market) to Chinese ADRs. Chinese ADRs including China Mobile Ltd. experience mean spillover from Hong Kong, whereas no mean spillover is found in Chinese ADRs excluding China Mobile Ltd. This difference may due to closer relationship between Hong Kong market and China Mobile Ltd.. Finally, we find symmetric responses in Chinese ADRs to upturns and downturns as well as the positive shocks and negative shocks in the US, Hong Kong and Shanghai markets. (Less)
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@misc{1334336,
  abstract     = {This paper examines how the returns and volatility of Chinese ADRs listed at NYSE are affected by their host market (US), underlying market (Hong Kong) and local market (Shanghai). Using a GARCH spillover model and data from 1 January 2002 to 30 September 2007, we find that the volatility spillover from US (host market), Hong Kong (underlying market) and Shanghai (local market) to Chinese ADRs, following the order: Hong Kong > US > Shanghai which can also be reflected in variance ratios. The increasing impact from host market and local market may attribute to strengthened integration between Chinese market and world market after China entered WTO. For US investors, they may need to be more prudent in diversification by using Chinese ADRs. However, there is relatively weak mean spillover from US (host market), Hong Kong (underlying market) and Shanghai (local market) to Chinese ADRs. Chinese ADRs including China Mobile Ltd. experience mean spillover from Hong Kong, whereas no mean spillover is found in Chinese ADRs excluding China Mobile Ltd. This difference may due to closer relationship between Hong Kong market and China Mobile Ltd.. Finally, we find symmetric responses in Chinese ADRs to upturns and downturns as well as the positive shocks and negative shocks in the US, Hong Kong and Shanghai markets.},
  author       = {Zhang, Hui and Gao, Yuanjing},
  keyword      = {GARCH,volatility,correlation,spillover,Shanghai,Chinese ADRs,Hang Seng,S&P 500,mean,asymmetries,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {Volatility and Mean Spillover of Chinese ADRs at New York Stock Exchange},
  year         = {2008},
}