Does market timing or issue type affect the long-run performance of UK American Depository Receipts listed on the New York Stock Exchange?

Abstract

This study examines the long-term return performance relative to the S&P 500 Index of American Depository Receipts issued by UK firms and listed on the New York Stock Exchange. Subsamples are used to capture effects of ADR issue type (Initial Public Offering (IPO) versus Seasoned Equity Offering (SEO)) and how market timing (bull versus bear markets) affects returns. Three-year return performance suggests UK ADRs perform similar to the S&P 500 Index, underperforming by less than 5 per cent. The IPO sample underperformed the market index by nearly 18 per cent while SEOs perform very similar to the market. Breaking the sample down to capture market-timing effects, the UK ADRs trading through the bull market underperformed by nearly 13 per cent while those listed and trading through the bear market barely outperformed the S&P 500 (by 2.6 per cent).