The Ex-Dividend Day Behavior of American Depository Receipts
Larry R. Gorman
California Polytechnic State University
Texas A&M University - Department of Finance
Robert A. Weigand
Washburn University School of Business
Journal of Multinational Financial Management, Forthcoming
We compare the ex-dividend day stock returns and trading volume of foreign stocks that trade in U.S. markets as American Depository Receipts (ADRs) with the ex-day returns and volume of a matched sample of U.S. stocks. This experiment allows us to investigate whether differences in the way dividends are paid and/or foreign currency risk affect the stock returns and trading volume of ADRs on the ex-dividend day. If these factors inhibit dividend capture in ADRs, then ADRs should earn larger ex-day returns than U.S. stocks, and their ex-day trading volume should be lower. We present evidence consistent with these hypotheses. The results of a cross-sectional regression analysis of ex-day returns and volume are not consistent with a foreign exchange risk premium suppressing dividend capture in ADRs, however, suggesting that differences in dividend payment policies account for the lower level of dividend capture in ADRs.
Keywords: American depository receipts, ADRs, Dividends, Ex-dividend day, Foreign exchange risk, investments, stock market, trading
JEL Classification: G15, G35, F31
Date posted: May 27, 2003
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