THE DYNAMIC RELATIONSHIP BETWEEN ADRS, INTEREST RATES,
Texas A&M University, U. S.A.
University of Texas, Pan American, U. S.A.
We examine the price and volatility spillovers from interest rates and exchange rates to American Depository Receipts (ADRs) originating from Mexico, Brazil, and Chile. Using the multivariate EGARCH model, we also examine the asymmetries in volatility transmission from interest rate and exchange rate changes on ADRs. Overall, our results suggest that there is information flow between these markets and that the markets have linear and nonlinear relationships in the short-run and are linked through the second moment. The implication of our results for investors and portfolio managers is that time-varying portfolio inputs are more informative than standard portfolio inputs.
JEL classification: C32; G12; G15
Keywords: ADR; Interest rate; Exchange rate; EGARCH