The Study on Effect from Global Market Shocks on the Premium of ADR (American Deposit Receipt)

This study examines the relationship between American deposit receipt (ADR) and global market shocks: the financial and commodity market changes, the volatilities of market changes, and the anomalies in the markets aiming at foreign exchange rate: Korean won vs. U. S. dollar, oil price, and interest rate. This study adopts some econometrics models such as random effect model and Prais-Winsten panel regression model. Main findings are as follows. First, oil price among market changes is critical influential factor to ADR premium, thus rising oil price leads to decreasing ADR premium. Second, the volatility of oil price including economic prospects among market volatilities affects negatively ADR premium. Third, the difference of foreign exchange rate between non deliverable forward (NDF) market rate reflecting global market trends and local market rate also affects positively ADR premium. The drop of foreign exchange rate in local market compared with that in NDF market results in increasing ADR premium through the increase of demand to Korean stocks from investors in U. S. market. As a concluding remark, this study can contribute to development on ADR premium study topic through making many follow-up studies come out because this research tries to test influential factors in terms of global market shocks that the previous studies did not touch.