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Understanding the ADR premium under market segmentation

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  • Matthieu Stigler

    (National Institute of Public Finance and Policy)

  • Ajay Shah
  • Ila Patnaik

Abstract

Capital controls can induce large and persistent deviations from the Law of One Price for cross-listed stocks in international capital markets. A considerable literature has explored firm-specific factors which influence ADR pricing when LOP is violated. In this paper, we examine the interlinkages between Indian ADR premiums and macroeconomic time-series. We construct an ADR premium index, whereby diversication across firms diminishes idiosyncratic fluctuations associated with each security. We find that the S&P 500 index and the domestic Nifty index influence the ADR Premium Index. Positive shocks to the ADR premium index precede higher purchases by foreign investors on the domestic market, and precede positive returns on the domestic index.

Suggested Citation

  • Matthieu Stigler & Ajay Shah & Ila Patnaik, 2010. "Understanding the ADR premium under market segmentation," Finance Working Papers 21850, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:21850
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    Cited by:

    1. Christopher Andrew Hartwell, 2014. "Capital Controls and the Determinants of Entrepreneurship," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(6), pages 434-456, December.
    2. Hartwell, Christopher A., 2011. "All That’s Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneurship in Emerging Markets," MPRA Paper 40257, University Library of Munich, Germany.
    3. Ila Patnaik & Ajay Shah & Nirvikar Singh, 2013. "Foreign Investors under Stress: Evidence From India," International Finance, Wiley Blackwell, vol. 16(2), pages 213-244, June.

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    More about this item

    Keywords

    capital market integration; depository receipts;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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