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Impact of ADR Listing on the Trading Volume and Volatility in the Domestic Market

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  • Demissew Diro Ejara

    (Fairleigh Dickinson University, U.S.A.)

  • Chinmoy Ghosh

    (University of Connecticut, U.S.A.)

Abstract

This paper investigates the impact of ADR listing on the trading volume and volatility of the domestic market. Existing theories indicate that trading shifts to a market with lower transaction costs, and the level of volatility is directly related to the level of trading activity. The analyses provide empirical evidence showing increase in both trading volume and price volatility in the domestic market after ADR listing. The increase in volatility is attributed to noise resulting from public information as opposed to from increased trading friction. This suggests improvement in liquidity following ADR listing. Comparison across country groups indicates marginally higher gain for emerging market stocks although the difference is not statistically significant. Auction type markets gain more in terms of increase in trading volume than dealer type markets.

Suggested Citation

  • Demissew Diro Ejara & Chinmoy Ghosh, 2004. "Impact of ADR Listing on the Trading Volume and Volatility in the Domestic Market," Multinational Finance Journal, Multinational Finance Journal, vol. 8(3-4), pages 247-274, september.
    • Handle: RePEc:mfj:journl:v:8:y:2004:i:3-4:p:247-274
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    References listed on IDEAS

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    3. Cathy S. Goldberg & Francisco A. Delgado, 2001. "Financial Integration of Emerging Markets: An Analysis of Latin America Versus South Asia Using Individual Stocks," Multinational Finance Journal, Multinational Finance Journal, vol. 5(4), pages 259-301, December.
    4. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 255-274.
    5. Levine, Ross & Zervos, Sara, 1998. "Capital Control Liberalization and Stock Market Development," World Development, Elsevier, vol. 26(7), pages 1169-1183, July.
    6. Nikitas Niarchos & Yiuman Tse & Chunchi Wu & Allan Young, 1999. "International Transmission of Information: A Study of the Relationship Between the U.S. and Greek Stock Markets," Multinational Finance Journal, Multinational Finance Journal, vol. 3(1), pages 19-40, March.
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    Cited by:

    1. Koulakiotis, Athanasios & Kartalis, Nikos & Lyroudi, Katerina & Papasyriopoulos, Nicholas, 2013. "The impact of corporate governance, regulatory differences and futures contracts on movements among portfolios of cross-listed equities: The case of Germany," Journal of Multinational Financial Management, Elsevier, vol. 23(1), pages 34-53.
    2. Jing Zhang & Huizhi Yu, 2017. "Venture Capitalists’ Experience and Foreign IPOs: Evidence from China," Entrepreneurship Theory and Practice, , vol. 41(5), pages 677-707, September.
    3. Poshakwale, Sunil S. & Aquino, Katty Pérez, 2008. "The dynamics of volatility transmission and information flow between ADRs and their underlying stocks," Global Finance Journal, Elsevier, vol. 19(2), pages 187-201.
    4. Olga Dodd & Christodoulos Louca, 2012. "International Cross-Listing and Shareholders’ Wealth," Multinational Finance Journal, Multinational Finance Journal, vol. 16(1-2), pages 49-86, March - J.
    5. Bley, Jorg & Saad, Mohsen, 2011. "The effect of financial liberalization on stock-return volatility in GCC markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 662-685.

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    More about this item

    Keywords

    ADR; cross listing; market segmentation; market liquidity.; transparency;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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