Dynamic links between ADRs and home country macroeconomic indicators: Empirical evidence from Turkey

In the U.S. stock market, 17 Turkish companies have their shares dual-listed through American Depositary Receipts (ADRs). The return and dividend performance of these shares is measured by the BNY Mellon Turkey Classic ADR index (BKCTRT). For investors who prefer ADRs for portfolio diversification, the effects of the home country's fundamental economic indicators on the ADR market are a significant issue. This study investigates the impact of changes in Turkey's inflation, real exchange rate, interest rates, and CDS indicators on the BKCTRT index in the U.S. market, as well as the dynamic relationships among them. The Autoregressive Distributed Lag (ARDL) approach was used to analyse relationships among multiple variables. The statistical consistency of the ARDL model was tested for model assumptions, significance, and stability. The ARDL cointegration analysis confirms the long-term cointegration between the variables. In the long term, changes in inflation and the real exchange rate in Turkey have a statistically positive effect on the BKCTR index, while CDS has an adverse effect. The long-term impact of the interest rate variable is statistically insignificant. In the short term, the CDS variable has a statistically significant impact on the BKCTRT index up to two lags. The short-term error term coefficient (ECM) is negative, and the shock effect in the current period is corrected by 18% in the next period. According to the results, changes in Turkey's basic economic indicators affect the U.S. market. Based on the results obtained, investors are advised to consider changes and expectations in Turkey's CDS, real exchange rate, and inflation when making decisions regarding the inclusion or exclusion of Turkey ADRs in their portfolios in the U.S. stock market, as well as when making buy/sell decisions for Turkey Classic (BKCTRT) index options in derivative markets.