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Title: Price and Volatility Linkages Between Indian Stocks and Their European GDRs
Authors: Madhavan V.
Ray, Partha
Keywords: DCC-GARCH
Dual listing
Vector autoregression
Issue Date: 2019
Publisher: SCOPUS
Journal of Emerging Market Finance
Sage Publications India Pvt. Ltd
Series/Report no.: 18(2_suppl)
Abstract: This article tests for price and volatility linkages between Indian global depositary receipts (GDRs) traded in Luxembourg/London and their underlying shares traded in Mumbai. The relationship is studied between the GDR price and the domestic share price along with the appropriate exchange rates, the foreign stock index and the domestic stock index using the vector autoregression (VAR) and dynamic conditional correlation (DCC) specification of multivariate generalised autoregressive conditional heteroscedasticity (GARCH) models. VAR results indicate a similarity between the two prices of scrips: one trading in Mumbai and the other trading in Luxembourg (London). Further, DCC-GARCH model outcomes point to, by and large, a high-dynamic correlation between Indian GDRs traded in Luxembourg/London and their underlying stocks listed in Mumbai. Thus, the price and volatility linkages between the Indian stock and its European counterpart are invariant with respect to the choice of the foreign stock exchange. Such a similarity in findings, notwithstanding the difference in degree of information disclosure as well as listing requirements at London and Luxembourg, is perhaps indicative of the stock-exchange-invariant nature of law of one price. JEL Classification: G15, C22.
Description: Madhavan, Vinodh, IFMR Graduate School of Business, KREA University, Chittoor, Andhra Pradesh, India, Amrut Mody School of Management, Ahmedabad University, Ahmedabad, India; Ray, Partha, Indian Institute of Management Calcutta, Kolkata, West Bengal, India
ISSN/ISBN - 09726527
DOI - 10.1177/0972652719846353
Appears in Collections:Economics

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