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Price determinants of American Depositary Receipts (ADR): a cross-sectional analysis of panel data

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  • Katty Perez Aquino
  • Sunil Poshakwale

Abstract

Evidence on ADR price discovery is provided using data for a large sample from 13 different countries for the period 1990 to 2000. Using Seemingly Unrelated Regression (SUR) and Feasible Generalized Least Squares (FGLS) models that incorporate both contemporaneous and lagged factors as exogenous variables in a cross-sectional panel data the findings indicate that movements in the underlying shares are the most influential factor affecting ADR prices. Further and contrary to the evidence provided in previous studies, the findings suggest that changes in the exchange rate significantly influence ADR prices. The results confirm previous findings that ADR price discovery occurs in the US stock market where they are listed and traded. Although, innovations in the home stock market do contribute to the ADR price discovery, its impact is not as strong as the one found for the innovations in the US stock market.

Suggested Citation

  • Katty Perez Aquino & Sunil Poshakwale, 2006. "Price determinants of American Depositary Receipts (ADR): a cross-sectional analysis of panel data," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1225-1237.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:16:p:1225-1237
    DOI: 10.1080/09603100500447503
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    References listed on IDEAS

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    Cited by:

    1. Figueiredo, Antonio & Parhizgari, A.M., 2017. "Currency volatility and bid-ask spreads of ADRs and local shares," Global Finance Journal, Elsevier, vol. 34(C), pages 54-71.
    2. Omar Esqueda & Dave Jackson, 2012. "Currency depreciation effects on ADR returns: evidence from Latin America," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 691-711, July.
    3. Chen, Mei-ping & Lee, Chien-Chiang & Hsu, Yi-Chung, 2011. "The impact of American depositary receipts on the Japanese index: Do industry effect and size effect matter?," Economic Modelling, Elsevier, vol. 28(1-2), pages 526-539, January.
    4. Stanley Peterburgsky & Yini Yang, 2013. "Diversification potential of ADRs, country funds and underlying stocks across economic conditions," Applied Financial Economics, Taylor & Francis Journals, vol. 23(3), pages 199-219, February.
    5. Alma Hales, 2015. "Liquidity and price discovery in Latin America: evidence from American depositary receipts," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 661-678, October.
    6. Omar Esqueda & Yongli Luo & Dave Jackson, 2015. "The linkage between the U.S. “fear index” and ADR premiums under non-frictionless stock markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 541-556, July.
    7. Grossmann, Axel & Ngo, Thanh & Simpson, Marc W., 2017. "The asymmetric impact of currency purchasing power imparities on ADR mispricing," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 74-94.

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