The early performance of American depository receipts listed on the New York Stock Exchange

Abstract

PurposeThis study examines the initial two‐week excess performance relative to the S&P 500 Index of American Depository Receipts (ADRs) listed on the New York Stock Exchange from January 1987 to September 2001 to determine whether short‐term wealth effects exist.Design/methodology/approachStandard intial public offering methodology is used to test for significant excess performance.FindingsResults for the entire sample of 281 ADRs suggest the initial excess performance was not significant. However, after segmenting the sample, emerging market ADRs significantly outperformed the S&P 500 by over three per cent while developed market ADRs underperformed by 0.92 per cent. Also, Latin American ADRs outperformed the market index by nearly five per cent during the first two weeks after issue while European ADRs underperformed the market by nearly one per cent. Asia Pacific ADRs underperformed the S&P 500, but not significantly in the early trading.Research limitations/implicationsThe findings suggest emerging market ADRs, particularly those from the Latin American region, perform well in the early trading while developed market ADRs do not. Future research may identify variables that affect or explain ADR excess returns.Originality/valueThe paper provides insights into the types of ADRs that accumulate wealth in the short term investment horizon.