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Lost in translation: Delayed ex-dividend price adjustments of Hong Kong ADRs

  • Kadapakkam, Palani-Rajan
  • Meisami, Alex
  • Shi, Yilun
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    Previous 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.

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    File URL: http://www.sciencedirect.com/science/article/B6VCY-4X5JR5V-1/2/6fe84e212020111060ae7707caa286eb
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 3 (March)
    Pages: 647-655

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:3:p:647-655
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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