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The Ex-Dividend Day Behavior of American Depository Receipts

Posted: 27 May 2003  

Larry R. Gorman

California Polytechnic State University

Arvind Mahajan

Texas A&M University - Department of Finance

Robert A. Weigand

Washburn University School of Business

Abstract

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

Suggested Citation

Gorman, Larry R. and Mahajan, Arvind and Weigand, Robert A., The Ex-Dividend Day Behavior of American Depository Receipts. Journal of Multinational Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=394001

Larry Gorman

California Polytechnic State University ( email )

College of Business
Department of Finance
San Luis Obispo, CA 93407
United States
805-756-1312 (Phone)
805-756-1473 (Fax)

Arvind Mahajan

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845-4876 (Phone)

Robert A. Weigand (Contact Author)

Washburn University School of Business ( email )

Topeka, KS
United States

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