Lost in translation: Delayed ex-dividend price adjustments of Hong Kong ADRs

Palani-Rajan Kadapakkam, Alex Meisami and Yilun Shi

Journal of Banking & Finance, 2010, vol. 34, issue 3, 647-655

Abstract: Previous research documents that Hong Kong stocks have a full ex-dividend price adjustment consistent with dividends and capital gains being tax free. We examine ex-dividend price behavior of Hong Kong ADRs to assess the impact of differing tax environments in US and Hong Kong. These ADRs typically go ex-dividend before their underlying stock. They experience significant abnormal returns of 1.16% on their ex-day; the average ex-day price drop is only 30% of the dividend. However, ADR prices drop when the underlying stock goes ex-dividend subsequently. The cumulative ADR price drop is equal to the dividend. Thus, the ADR ex-dividend adjustment resembles that of the underlying stock, consistent with home country tax laws governing ADR price behavior. Neither liquidity nor transaction costs can explain the anomalous delayed ex-dividend adjustment of ADRs.

Keywords: Ex-dividend; abnormal; returns; ADRs; Hong; Kong (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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