Divergence of US and Local Returns in the After-market for Equity Issuing ADRs


  • The authors are grateful to Mike Cooper, Mike Cliff, Dave Denis, John Doukas (the editor), Laura Frieder, John Griffin, Andrew Karolyi, John McConnell and Jay Ritter for helpful comments. Any errors are the responsibility of the authors. Corresponding author: Avanidhar Subrahmanyam, The Anderson School, University of California at Los Angeles, Los Angeles, CA 90095-1481, USA.


We study one-year post-listing prices and returns to equity issuing ADRs that listed in the US between January 1991 and October 2000. ADRs from countries that impose restrictions on capital flows are priced at a premium to their home market ordinaries. While the mean premium for the full sample is statistically indistinguishable from zero, after an adjustment for asynchronous trading, the magnitude of the premium to ADRs from restricted markets is 11.33% at the 300-day post listing interval, which is statistically significant. In the short run (30 days) following listing, the magnitude of the premium is larger for ADRs with larger excess demand from US investors. At the longer 300-day horizon, Nasdaq listed ADRs earn a larger premium than their NYSE/AMEX listed counterparts. Time-series regressions and two-stage cross-sectional regressions establish that the premium to foreign equity issuers is greater if the US listing attracts liquidity and if US returns have a lower correlation with the local country index.