Price Behavior of the Taiwan Depositary Receipt

Shu-Ing LIU, Li-Chuan HUANG


This is a case study to discuss the Taiwan Depositary Receipt’s (TDR) market performance. Attention is focused on the event study, market risk analysis and the trading strategy for TDRs. Tests of abnormal returns for underlying stocks during the event period were conducted. Regression analysis via the market model, comparing the risk level between the TDR and the underlying stocks was investigated. Furthermore, causality tests are applied to explore the relationships between the price of underlying stocks and the corresponding TDR. Finally, utilizing the cointegration structure, suitable strategies for trading TDRs are proposed. The empirical results indicate that the underlying stocks have declaration effects, at the TDR’s initial announcement date. TDR’s issued after 2009 have higher risks and higher returns. The out-sampled empirical results show that there are no immediate arbitrage opportunities, however, the proposed waiting trading strategy could increase profits.

Key words: Cointegration; Event study; Market risk; Taiwan depositary receipts; Trading strategy


Cointegration; Event study; Market risk; Taiwan depositary receipts; Trading strategy

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