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Understanding the ADR premium under market segmentation

Ajay Shah, Ila Patnaik and Matthieu Stigler

Working Papers from eSocialSciences

Abstract: Capital controls can induce large and persistent deviations from the Law of One Price for cross-listed stocks in international capital markets. A considerable literature has explored rm-speci c factors which in uence ADR pricing when LOP is violated. In this paper, we examine the interlinkages between Indian ADR premiums and macroe- conomic time-series. We construct an ADR premium index, whereby diversi cation across rms diminishes idiosyncratic uctuations asso- ciated with each security. We nd that the S&P 500 index and the domestic Nifty index in uence the ADR Premium Index. Positive shocks to the ADR premium index precede higher purchases by for- eign investors on the domestic market, and precede positive returns on the domestic index. [Working Paper No. 2010-71]

Keywords: capitalmarketintegration; depositoryreceipts (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-ifn
Note: Institutional Papers
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Citations: View citations in EconPapers (4)

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