An Empirical Study of Exchange-Traded Adrs from India Market Reaction

Abstract

Depositary Receipts have emerged as a favored vehicle to access developed stock markets for many emerging market companies. India has been no exception. While several Indian companies have issued ADRs in the 1990's only a few of these securities are listed in US exchanges. We study the return and volume dynamics of these exchangelisted ADRs of Indian origin. We find that the underlying stock returns, exchange rate and market indices in the US and India together often explain less than half of the movement in ADR returns. Returns and volumes also exhibit low cross-border correlations. Indian ADRs often enjoy large premiums, indicating effective market segmentation between the two countries. Finally ADR issuance often has a temporary positive effect on the underlying stock price, but usually does not materially alter the stock's relationships with the US and Indian markets.

Keywords: India, Stock Market, ADR

JEL Classification: G12, N20