Abstract
This study examines the characteristics and performance of American depository receipts (ADRs) in international indexes and the role of ADRs on foreign ordinaries as a global diversifier. We find that ADRs in Europe, Australasia and the Far East are tilted toward three common factors: giant cap, dividend yield and UK stocks. We also find that portfolio combinations of ADRs and US equities provide inefficient diversification opportunities relative to an efficient frontier analysis of the S&P500 and Global 700, the latter portfolio consisting of a diversified mix of ADRs and non-ADR-based foreign shares. Our findings on ADR characteristics are consistent with prior research, whereas our ADR performance findings are inconsistent with prior research. Caveats apply, notably for yield-seeking taxable accounts.
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