American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds
For a foreign "issuer," the benefits of cross-listing in the United States are extensively documented in the literature. However it is not clear what motivates "investors" to hold American Depositary Receipts (ADRs) rather than the underlying stock of these issuers. The authors a...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2005/03/6501286/american-depositary-receipts-adr-holdings-based-emerging-market-funds http://hdl.handle.net/10986/8555 |
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okr-10986-85552021-04-23T14:02:43Z American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds Aggarwal, Reena Dahiya, Sandeep Klapper, Leora ADR ARBITRAGE ASSETS BENCHMARK BID BOOK VALUE BUNDLING CAPITAL MARKET COST OF CAPITAL DISCLOSURE DISCLOSURE REQUIREMENTS DIVIDENDS DOMESTIC MARKET DOMESTIC MARKETS EMERGING MARKET EMERGING MARKETS FINANCIAL MARKETS FOREIGN CURRENCY FOREIGN EQUITIES FOREIGN FIRMS GDP GDP PER CAPITA HOME MARKET INCOME INSIDER TRADING INSTITUTIONAL INVESTORS INVESTMENT AMOUNT INVESTMENT CLIMATE INVESTOR PROTECTION LIQUIDITY MARKET DEVELOPMENT MARKET MICROSTRUCTURE MARKET VALUE MINORITY SHAREHOLDERS MUTUAL FUND MUTUAL FUNDS NASDAQ NYSE PORTFOLIO PREEMPTIVE RIGHTS PRIVATE PLACEMENT PRIVATE PROPERTY PROPERTY RIGHTS PURCHASING SALE SPREAD STATEMENTS STOCKS TELECOMMUNICATIONS TOTAL MARKET CAPITALIZATION TRADERS TRANSPARENCY TRUST COMPANY TURNOVER VALUATION VOLATILITY WEALTH For a foreign "issuer," the benefits of cross-listing in the United States are extensively documented in the literature. However it is not clear what motivates "investors" to hold American Depositary Receipts (ADRs) rather than the underlying stock of these issuers. The authors address the investors' choice to purchase local shares versus investing in ADRs. Specifically, they analyze the investment allocation decision of mutual fund managers to invest in emerging market firms that are listed in their domestic markets and have also issued ADRs in the United States. Although legal provisions (governance/investor protection) are typically assumed to affect ADRs and their underlying domestic shares equally, investors holding ADRs may have a higher level of legal protection as these securities are issued and traded in the United States. The authors' results are consistent with this "better legal protection" hypothesis as they find that funds prefer to hold ADRs rather than the underlying shares if the issuer is from a country with weak investor protection laws. Also, theoretical models of multiple trading exchanges predict that trading should tend to aggregate in the market with the lowest transaction costs. Similarly, the relative liquidity of an ADR compared to that of its underlying stock should also affect the funds' relative holding of the ADR versus the underlying stock. Consistent with this "ease of transaction" hypothesis the authors find that if an issuer is based in a country with a relatively small stock market, low level of trading volume, and high transaction costs, funds tend to hold a larger proportion of their investments in the ADR. Furthermore, funds hold a larger fraction of their investment in the ADR if the ADR trading volume is high relative to its domestic security trading volume. The results also suggest that ADR listings of local firms might not negatively affect local markets if the investment climate is good. 2012-06-20T18:56:35Z 2012-06-20T18:56:35Z 2005-03 http://documents.worldbank.org/curated/en/2005/03/6501286/american-depositary-receipts-adr-holdings-based-emerging-market-funds http://hdl.handle.net/10986/8555 English Policy Research Working Paper; No. 3538 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research United States |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ADR ARBITRAGE ASSETS BENCHMARK BID BOOK VALUE BUNDLING CAPITAL MARKET COST OF CAPITAL DISCLOSURE DISCLOSURE REQUIREMENTS DIVIDENDS DOMESTIC MARKET DOMESTIC MARKETS EMERGING MARKET EMERGING MARKETS FINANCIAL MARKETS FOREIGN CURRENCY FOREIGN EQUITIES FOREIGN FIRMS GDP GDP PER CAPITA HOME MARKET INCOME INSIDER TRADING INSTITUTIONAL INVESTORS INVESTMENT AMOUNT INVESTMENT CLIMATE INVESTOR PROTECTION LIQUIDITY MARKET DEVELOPMENT MARKET MICROSTRUCTURE MARKET VALUE MINORITY SHAREHOLDERS MUTUAL FUND MUTUAL FUNDS NASDAQ NYSE PORTFOLIO PREEMPTIVE RIGHTS PRIVATE PLACEMENT PRIVATE PROPERTY PROPERTY RIGHTS PURCHASING SALE SPREAD STATEMENTS STOCKS TELECOMMUNICATIONS TOTAL MARKET CAPITALIZATION TRADERS TRANSPARENCY TRUST COMPANY TURNOVER VALUATION VOLATILITY WEALTH |
| spellingShingle |
ADR ARBITRAGE ASSETS BENCHMARK BID BOOK VALUE BUNDLING CAPITAL MARKET COST OF CAPITAL DISCLOSURE DISCLOSURE REQUIREMENTS DIVIDENDS DOMESTIC MARKET DOMESTIC MARKETS EMERGING MARKET EMERGING MARKETS FINANCIAL MARKETS FOREIGN CURRENCY FOREIGN EQUITIES FOREIGN FIRMS GDP GDP PER CAPITA HOME MARKET INCOME INSIDER TRADING INSTITUTIONAL INVESTORS INVESTMENT AMOUNT INVESTMENT CLIMATE INVESTOR PROTECTION LIQUIDITY MARKET DEVELOPMENT MARKET MICROSTRUCTURE MARKET VALUE MINORITY SHAREHOLDERS MUTUAL FUND MUTUAL FUNDS NASDAQ NYSE PORTFOLIO PREEMPTIVE RIGHTS PRIVATE PLACEMENT PRIVATE PROPERTY PROPERTY RIGHTS PURCHASING SALE SPREAD STATEMENTS STOCKS TELECOMMUNICATIONS TOTAL MARKET CAPITALIZATION TRADERS TRANSPARENCY TRUST COMPANY TURNOVER VALUATION VOLATILITY WEALTH Aggarwal, Reena Dahiya, Sandeep Klapper, Leora American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| geographic_facet |
United States |
| relation |
Policy Research Working Paper; No. 3538 |
| description |
For a foreign "issuer," the benefits of cross-listing in the United States are extensively documented in the literature. However it is not clear what motivates "investors" to hold American Depositary Receipts (ADRs) rather than the underlying stock of these issuers. The authors address the investors' choice to purchase local shares versus investing in ADRs. Specifically, they analyze the investment allocation decision of mutual fund managers to invest in emerging market firms that are listed in their domestic markets and have also issued ADRs in the United States. Although legal provisions (governance/investor protection) are typically assumed to affect ADRs and their underlying domestic shares equally, investors holding ADRs may have a higher level of legal protection as these securities are issued and traded in the United States. The authors' results are consistent with this "better legal protection" hypothesis as they find that funds prefer to hold ADRs rather than the underlying shares if the issuer is from a country with weak investor protection laws. Also, theoretical models of multiple trading exchanges predict that trading should tend to aggregate in the market with the lowest transaction costs. Similarly, the relative liquidity of an ADR compared to that of its underlying stock should also affect the funds' relative holding of the ADR versus the underlying stock. Consistent with this "ease of transaction" hypothesis the authors find that if an issuer is based in a country with a relatively small stock market, low level of trading volume, and high transaction costs, funds tend to hold a larger proportion of their investments in the ADR. Furthermore, funds hold a larger fraction of their investment in the ADR if the ADR trading volume is high relative to its domestic security trading volume. The results also suggest that ADR listings of local firms might not negatively affect local markets if the investment climate is good. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Aggarwal, Reena Dahiya, Sandeep Klapper, Leora |
| author_facet |
Aggarwal, Reena Dahiya, Sandeep Klapper, Leora |
| author_sort |
Aggarwal, Reena |
| title |
American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| title_short |
American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| title_full |
American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| title_fullStr |
American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| title_full_unstemmed |
American Depositary Receipts (ADR) Holdings of U.S. Based Emerging Market Funds |
| title_sort |
american depositary receipts (adr) holdings of u.s. based emerging market funds |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2005/03/6501286/american-depositary-receipts-adr-holdings-based-emerging-market-funds http://hdl.handle.net/10986/8555 |
| _version_ |
1764408113927028736 |