Impact of ADR Listing on the Trading Volume and Volatility in the Domestic Market

Multinational Finance Journal, Vol. 8, No. 3, pp. 247-274, 2004

Posted: 28 Feb 2010

See all articles by Demissew Diro Ejara

Demissew Diro Ejara

University of New Haven

Chinmoy Ghosh

University of Connecticut - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2004

Abstract

This paper investigates the impact of ADR listing on the trading volume and volatility of the domestic market. Existing theories indicate that trading shifts to a market with lower transaction costs, and the level of volatility is directly related to the level of trading activity. The analyses provide empirical evidence showing increase in both trading volume and price volatility in the domestic market after ADR listing. The increase in volatility is attributed to noise resulting from public information as opposed to from increased trading friction. This suggests improvement in liquidity following ADR listing. Comparison across country groups indicates marginally higher gain for emerging market stocks although the difference is not statistically significant. Auction type markets gain more in terms of increase in trading volume than dealer type markets.

Keywords: ADR, Cross Listing, Market Segmentation, Market Liquidity, Transparency

JEL Classification: G15, N20

Suggested Citation

Ejara, Demissew Diro and Ghosh, Chinmoy, Impact of ADR Listing on the Trading Volume and Volatility in the Domestic Market (2004). Multinational Finance Journal, Vol. 8, No. 3, pp. 247-274, 2004, Available at SSRN: https://ssrn.com/abstract=1560482

Demissew Diro Ejara (Contact Author)

University of New Haven ( email )

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Pompea College of Business
West Haven, CT 06516
United States
(203) 932-7150 (Phone)

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

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