Abstract
ADR premiums being discrepancies between returns on ADRs and returns on underlying shares, they do provide us with an indicator of US investors' relative optimism or pessimism. Panel data from firms with ADR programs from 35 countries during the last 10 years, reveal that global and local risk factors, related to market, exchange rate, commodity and liquidity premiums, account for these discrepancies. The investor sentiment hypothesis cannot be rejected and there is evidence that ADR premiums have significant predictive power over next period's ADR returns. On a time series level, major events, such as the terrorist attacks of September, 11, are identified as structural breaks in the evolution of US investors' sentiment as well as on its impact on ADR premiums. On a cross-sectional level, markets are partially segmented and the relative importance of premiums' factors varies across different regions of the world, as well as between emerging and developed markets.
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