The Effects of Market Segmentation and Illiquidity on Asset Prices: Evidence from Foreign Stocks Listing in the Us

Foerster  , Stephen R.; Karolyi, George Andrew

doi:10.2139/ssrn.1006

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The Effects of Market Segmentation and Illiquidity on Asset Prices: Evidence from Foreign Stocks Listing in the Us

Dice Center for Research in Financial Economics WPS 96-6

53 Pages Posted: 27 Nov 1996

See all articles by Stephen R. Foerster

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Date Written: August 1998

Abstract

new abstract and new pdf file Diane 10/22/98 Diane Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton?s (1987) investor recognition hypothesis.

JEL Classification: G12

Suggested Citation: Suggested Citation

Foerster, Stephen R. and Karolyi, George Andrew, The Effects of Market Segmentation and Illiquidity on Asset Prices: Evidence from Foreign Stocks Listing in the Us (August 1998). Dice Center for Research in Financial Economics WPS 96-6, Available at SSRN: https://ssrn.com/abstract=1006 or http://dx.doi.org/10.2139/ssrn.1006