Divergence of Us and Local Returns in the After-Market for Equity Issuing Adrs

24 Pages Posted: 6 Sep 2004

See all articles by Padma Kadiyala

Padma Kadiyala

Pace University - Lubin School of Business

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Abstract

We study one-year post-listing prices and returns to equity issuing ADRs that listed in the US between January 1991 and October 2000. ADRs from countries that impose restrictions on capital flows are priced at a premium to their home market ordinaries. While the mean premium for the full sample is statistically indistinguishable from zero, after an adjustment for asynchronous trading, the magnitude of the premium to ADRs from restricted markets is 11.33% at the 300-day post listing interval, which is statistically significant. In the short run (30 days) following listing, the magnitude of the premium is larger for ADRs with larger excess demand from US investors. At the longer 300-day horizon, Nasdaq listed ADRs earn a larger premium than their NYSE/AMEX listed counterparts. Time-series regressions and two-stage cross-sectional regressions establish that the premium to foreign equity issuers is greater if the US listing attracts liquidity and if US returns have a lower correlation with the local country index.

Suggested Citation

Kadiyala, Padma and Subrahmanyam, Avanidhar, Divergence of Us and Local Returns in the After-Market for Equity Issuing Adrs. European Financial Management, Vol. 10, No. 3, pp. 389-411, September 2004. Available at SSRN: https://ssrn.com/abstract=584083

Padma Kadiyala (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States
914-773-3620 (Phone)

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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