Lost in translation: Delayed ex-dividend price adjustments of Hong Kong ADRs
AbstractPrevious research documents that Hong Kong stocks have a full ex-dividend price adjustment consistent with dividends and capital gains being tax free. We examine ex-dividend price behavior of Hong Kong ADRs to assess the impact of differing tax environments in US and Hong Kong. These ADRs typically go ex-dividend before their underlying stock. They experience significant abnormal returns of 1.16% on their ex-day; the average ex-day price drop is only 30% of the dividend. However, ADR prices drop when the underlying stock goes ex-dividend subsequently. The cumulative ADR price drop is equal to the dividend. Thus, the ADR ex-dividend adjustment resembles that of the underlying stock, consistent with home country tax laws governing ADR price behavior. Neither liquidity nor transaction costs can explain the anomalous delayed ex-dividend adjustment of ADRs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 34 (2010)
Issue (Month): 3 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf
Ex-dividend abnormal returns ADRs Hong Kong;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Murray Frank & Ravi Jagannathan, 1997.
"Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes,"
229, Federal Reserve Bank of Minneapolis.
- Frank, Murray & Jagannathan, Ravi, 1998. "Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes," Journal of Financial Economics, Elsevier, vol. 47(2), pages 161-188, February.
- Froot, Kenneth A. & Dabora, Emil M., 1999.
"How are stock prices affected by the location of trade?,"
Journal of Financial Economics,
Elsevier, vol. 53(2), pages 189-216, August.
- Kenneth A. Froot & Emil Dabora, 1998. "How are Stock Prices Affected by the Location of Trade?," NBER Working Papers 6572, National Bureau of Economic Research, Inc.
- Sandra Renfro Callaghan & Christopher B. Barry, 2003. "Tax-Induced Trading of Equity Securities: Evidence from the ADR Market," Journal of Finance, American Finance Association, vol. 58(4), pages 1583-1612, 08.
- Arquette, Gregory C. & Brown Jr., William O. & Burdekin, Richard C.K., 2008. "US ADR and Hong Kong H-share discounts of Shanghai-listed firms," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1916-1927, September.
- Chan, Justin S.P. & Hong, Dong & Subrahmanyam, Marti G., 2008. "A tale of two prices: Liquidity and asset prices in multiple markets," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 947-960, June.
- Kalok Chan & Allaudeen Hameed & Sie Ting Lau, 2003. "What if Trading Location Is Different from Business Location? Evidence from the Jardine Group," Journal of Finance, American Finance Association, vol. 58(3), pages 1221-1246, 06.
- Gorman, Larry R. & Mahajan, Arvind & Weigand, Robert A., 2004. "The ex-dividend day behavior of American depository receipts," Journal of Multinational Financial Management, Elsevier, vol. 14(1), pages 1-18, February.
- Ana Paula Serra, 1999. "Dual-listings on international exchanges: the case of emerging markets' stocks," European Financial Management, European Financial Management Association, vol. 5(2), pages 165-202.
- Rosenthal, Leonard & Young, Colin, 1990. "The seemingly anomalous price behavior of Royal Dutch/Shell and Unilever N.V./PLC," Journal of Financial Economics, Elsevier, vol. 26(1), pages 123-141, July.
- Aelee Jun & V. T. Alaganar & Graham Partington & Max Stevenson, 2008. "Price and Volume Behavior around the Ex-dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks-super-," International Review of Finance, International Review of Finance Ltd., vol. 8(1-2), pages 21-55.
- Christoffersen, Susan E.K. & Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2005. "Crossborder dividend taxation and the preferences of taxable and nontaxable investors: Evidence from Canada," Journal of Financial Economics, Elsevier, vol. 78(1), pages 121-144, October.
- Eichler, Stefan & Karmann, Alexander & Maltritz, Dominik, 2009. "The ADR shadow exchange rate as an early warning indicator for currency crises," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1983-1995, November.
- David A. Dubofsky, 1992. "A Market Microstructure Explanation of Ex-Day Abnormal Returns," Financial Management, Financial Management Association, vol. 21(4), Winter.
- Kadapakkam, Palani-Rajan & Martinez, Valeria, 2008. "Ex-dividend returns: The Mexican puzzle," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2453-2461, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.