Fluctuating Returns of Dual Listings: Domestic and ADR Markets

Abstract

This paper examines the extent to which the dollar returns of stocks, dual listed on the domestic market and on the US market, as American Depository Receipts (ADRs), capture the fluctuations of both markets. Since 1989 there has been phenomenal growth in ADR offerings from several countries. The dollar monthly returns for ADRs, country and US market indices are examined during 01/89 12/99, for 19 countries, to capture the fluctuations in the returns. Five sets of hypothesis are tested: (i) ADR return against country market index (ii) ADR return against the US market index (iii) ADR return against both domestic and US market indexes (iv) country market index against US market index (v) Country market index against the US market index and increasing number of dual listed ADRs. The results indicate that the ADRs do capture the fluctuations of both the domestic and US markets but more importantly if the number of dual listed ADRs increases, the effect is a lowering of risk premium of the domestic market. 3 Fluctuating Returns of Dual Listings: Domestic and ADR Markets