| Summary: | 碩士 === 國立交通大學 === 管理學院財務金融學程 === 99 === It is apparent that Hot Money has been moving around free economies in the developed world nowadays. Besides, the subprime mortgage meltdown in the U.S. led to the global financial crisis in 2008. For both aforementioned matters, the victims are actually the investors rather than financial institutions. During the crisis, many derivative financial products and mutual funds were settled or even led to enormous loss because of illiquidity or prompt redemption. Vast financial corporations in America and Europe therefore could not afford to pay their bond interest and hence faced the default crisis which resulted in the extremely low value of the bonds. After the Financial Tsunami, the investors have realized that risks should be taken into account in addition to the rewards of financial products.
This paper will study how to profit from the price spread between the depository receipts and common stock via the practice of arbitrage with minimum risk with a focus on the depository receipt in particular. Then three case studies will be conducted about the arbitrage opportunity between the Depository Receipt and the Common Stock, including Taiwan common stock Taiwan Semiconductor Manufacturing Company (TSMC) and ADR, Taiwan common stock green energy technology and GDR, as well as Tingyi (Cayman Islands) Holding Corp., a Hong Kong invested corporation, and TDR.
The conclusion of this paper is that even if the common stock and the depository receipt have a spread, arbitrage trading is not always workable due to the differences in laws and regulations between two different countries. Once the differences are settled, the common stock’s price is close to that of the depository receipt, Therefore there will be no arbitrage opportunities anyway.
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