Return-volatility spillover and foreign operations of dually-listed global firms

Abstract

This paper investigates the pricing spillovers between the local (Asian, European, and Oceanian) market and the U.S. market by using daytime and overnight returns on 114 Asian, European, and Oceanian underlying stocks and their ADRs. We have found that the return and volatility spillover from the underlying stock in the daytime local markets to its ADR in the overnight U.S. market is much stronger than the return and volatility spillover effect in the reverse direction from the U.S. market to the local markets. We have also found that, in Korea and Japan, the Asian financial crisis has further intensified the spillovers in both directions from the local market to the U.S. market and from the U.S. market to the local market. The return and volatility spillover is related with the extent of foreign operations of the firms. That is, the more the foreign operations (in terms of sales and assets), the more the return spillover from the U.S. market to the local market, but the less the return spillover in the opposite direction.