Short-term and long-term performance of IPOs and SEOs traded as American depository receipts: Does timing matter?

Abstract

This paper examines the short-term and long-term returns of a sample of foreign equities traded on the New York Stock Exchange as American Depository Receipts (ADRs) issued between 1st January, 1987, and 30th September, 2000. Distinctions are made between those ADRs issued as initial public offerings (IPOs) and as seasoned equity offerings (SEOs) and those before and after 1st June, 1998. The results suggest that, on average, ADR IPOs and SEOs issued prior to 1st June, 1998, underperform the S&P500 in both short-term and long-term holding periods. Conversely, ADR IPOs and SEOs issued after 1st June, 1998, either perform equally or outperform the S&P500 in both short-term and long-term holding periods. Overall, the results suggest that non-negative and even positive significant cumulative wealth effects associated with stock market timing may exist for ADR IPOs and SEOs trading during holding periods in bear markets.