Academic journal article Academy of Accounting and Financial Studies Journal

How Did Emerging and Developed Market NASDAQ-Listed ADRS Perform in the 1990s and 2000s?

Academic journal article Academy of Accounting and Financial Studies Journal

How Did Emerging and Developed Market NASDAQ-Listed ADRS Perform in the 1990s and 2000s?

Article excerpt


An American Depository Receipt (henceforth ADR) represents ownership in foreign shares that trade in US markets. The investment design allows for buying the foreign companies without the hassles of engaging in FOREX transactions or dealing with stock exchanges in other countries. Although investors may diversify internationally by purchasing mutual fund shares including exchange-traded funds, the ADR still allows for the picking and choosing of individual firms over others. Also, having the foreign firm's stock listed in the US makes investing in an ADR as easy as investing in a US firm.

Performance studies emphasize the returns of an investment relative to an appropriate benchmark. These gained popularity in the examining of IPOs and have remained useful in looking at ADRs. Some ADR studies give mixed results. For example, Callaghan, Kleiman and Sahu (1999), Foerster and Karolyi (2000), and Schaub (2003) differed in their conclusions about whether ADRs outperform or underperform the US benchmark. The inconsistent results were probably due to using different samples and different market benchmarks. Stock market timing affected the results as well (this is addressed in Schaub, 2004). However, evidence shows ADRs can provide beneficial diversification outcomes by outperforming a US index (especially in times when the US market is in correction) and reducing exchange rate risk as indicated by Officer and Hoffmeister (1988), Jiang (1998), and Schaub (2004). Schaub and Brown (2015) confirms that ADR returns for large company firms listed on the New York Stock Exchange (NYSE) do not just simply mirror US or even regional index returns, indicating that ADRs retain usefulness in portfolio selection decisions.

Much of the mentioned ADR research provided relevant information when first published, but the results have become dated. Most sample periods stop in the 1990s or early 2000s, thus ignoring the rapid development of once emerging economies and the impact of increased informational efficiency provided by technological advancement. Also, these studies tend to only look at large firms or mix small and large firms together in the sample. As a result, the literature lacks a good long-term examination of predominantly small firm ADRs that includes more recent listings.

In addressing these issues, this study examines how all the ADRs listed on the NASDAQ from 1990 through 2010 performed in the short-term and long-term relative to the NASDAQ index (examining both short-term and long-term ADR performance addresses the differing holding periods desired by investors suggested by Schaub, 2015). This solves the short sample period problem by looking at 20 full years of ADR listings. It also solves the outdated sample problem by utilizing a much more recent sample. Finally this study solves the large firm only (or exclusively) problem by only including firms listing their ADRs on the NASDAQ (rather than the NYSE). Excess performance results are broken down by issue date, capturing the timing effect of listing ADRs during periods of stable US markets (1990s) versus volatile (2000s). The further segmenting of the results based on emerging versus developed issues will provide a better understanding as to whether diversification benefits vary based on where the listed firms are headquartered.

The study contains several more sections. A review of background and relevant literature emphasizing ADR performance studies is next, followed by the methodology section and another presenting the results. A final section concludes the study.


Large banks create ADRs by bundling shares of a foreign stock until its dollar translated value represents what US shares normally sell for. Once bundled, a receipt backed by the shares trades on US exchanges or in the over-the-counter market much like a domestic stock. Any cash dividends issued by the foreign firm are translated into US dollars before being passed along to the ADR owner. …

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