This thesis focuses on the direction of information transmission and the factors determining the direction for Korean stocks and their depository receipts (DRs). The data in this study consists of the prices of 24 Korean stocks and their DRs listed on the London Stock Exchange (LSE), New York Stock Exchange (NYSE) and NASDAQ for the period from January 1999 to November 2002. Three-stage least squares is used as a system estimation method to investigate the direction of information transmission, and logit regression analysis is used to investigate the factors determining the direction.
It is found that the returns of stocks (close to close) on the Korean Stock Exchange very strongly affect the returns of their DRs (close to close) on all 24 Korean stocks. Therefore the home market leadership hypothesis can be applied to Korean stocks. There are also significant feedback effects of DRs on stocks in lag 1 for 18 of the 24 Korean stocks.
There are two significant factors determining the feedback effect. One is the particular stock exchange on which the DRs are listed, and the second is the relative trading volume of DRs compared to that of stocks. However, the export/sales ratio and foreign shareholders ratio are not significant. The influence of DRs listed on the American stock exchange is stronger than the influence of DRs listed on the LSE. The larger the relative trading volume of DRs listed on the American stock exchange is, the stronger the influence of the DRs is. However, there are no significant factors that determine the influence of stocks on DRs.
