Understanding the ADR premium under market segmentation
AbstractCapital 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 diversification 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.
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Bibliographic InfoPaper provided by National Institute of Public Finance and Policy in its series Working Papers with number 10/71.
Date of creation: Jul 2010
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Note: Working Paper 71, 2010
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Other versions of this item:
- Matthieu Stigler & Ajay Shah & Ila Patnaik, 2010. "Understanding the ADR premium under market segmentation," Finance Working Papers 21850, East Asian Bureau of Economic Research.
- Ajay Shah & Ila Patnaik & Matthieu Stigler, 2010. "Understanding the ADR premium under market segmentation," Working Papers id:2826, eSocialSciences.
- 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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