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The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the U.S.

Dice Center for Research in Financial Economics Working Paper No. 98-11

53 Pages Posted: 27 Oct 1998  

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

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Abstract

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 oflisting. Our tests provide support for the market segmentation hypothesis and Merton?s (1987) investor recognition hypothesis.

JEL Classification: G12, G14

Suggested Citation

Foerster , Stephen R. and Karolyi, George Andrew, The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the U.S.. Dice Center for Research in Financial Economics Working Paper No. 98-11. Available at SSRN: https://ssrn.com/abstract=136713 or http://dx.doi.org/10.2139/ssrn.136713

Stephen R. Foerster (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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