Abstract
This paper investigates the variance of ADR returns with a focus on information effect and influence of trading in the U.S. market. In the absence of trading of underlying stocks, the average variance of ADR returns decreases to roughly 40 percent of its value on ordinary days. On the other hand, the variance of ADR returns increases significantly on the days after the period when U.S. exchanges are closed, but this increase is not proportionate to the number of trading days corresponding to the underlying stock. These results suggest that while information about the price of the underlying stock is an important source of variability in ADR returns, private information and/or trading noise revealed through trading activities in the U.S. market also has an impact on the variance of ADR returns. In addition, an investigation of the trading volume of ADRs shows that change in the variance of ADR returns is not directly associated with trading volume.
Published Version
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