The early performance of American depository receipts listed on the New York Stock Exchange

Abstract

Purpose -This study examines the initial two-week excess performance relative to the S&P 500 Index of American Depository Receipts (ADRs) listed on the New York Stock Exchange from January 1987 to September 2001 to determine whether short-term wealth effects exist. Design/methodology/approach -Standard intial public offering methodology is used to test for significant excess performance. Findings -Results for the entire sample of 281 ADRs suggest the initial excess performance was not significant. However, after segmenting the sample, emerging market ADRs significantly outperformed the S&P 500 by over three per cent while developed market ADRs underperformed by 0.92 per cent. Also, Latin American ADRs outperformed the market index by nearly five per cent during the first two weeks after issue while European ADRs underperformed the market by nearly one per cent. Asia Pacific ADRs underperformed the S&P 500, but not significantly in the early trading.Research limitations/implications -The findings suggest emerging market ADRs, particularly those from the Latin American region, perform well in the early trading while developed market ADRs do not. Future research may identify variables that affect or explain ADR excess returns. Originality/value -The paper provides insights into the types of ADRs that accumulate wealth in the short term investment horizon.

Market timing wealth effects of American Depository Receipts: The cases of emerging and developed market issues

“…In another study, Schaub (2003b) reports that in the first month of trading his sample of 89 emerging market ADRs underperformed the S&P 500 index by 2.16%, while the 90 developed market ADRs performed the same as the S&P 500 index. In the long-term, emerging market ADRs underperformed the S&P 500 by over 28% after 3 years of trading and developed market ADRs underperformed the S&P 500 by nearly 11%.…”

“…The ADRs issued immediately after May 1, 2000 underperformed the S&P 500 by 1.4% in the first month. Therefore, Schaub (2003a) concludes that high early ADR excess returns during a stock market boom suggests the existence of market timing effects based on date of issuance and holding period.…”

“…For example, Schaub (2002) found 18 Mexican ADRs issued on the NYSE from January 1, 1991 through May 31, 1996 outperformed the S&P 500 by 3.8% on the first day of trading, but underperformed the same index by nearly 200% in their first 5 years of trading. More recently, Schaub (2003a) compared the early returns of ADRs traded on the NYSE segmented by date of issue to determine market-timing effects on ADR early returns. The ADRs issued just prior to May 1, 2000 outperformed the S&P 500 index by nearly 12% in the first month of trading.…”

“…Because the sample of ADRs includes only large foreign companies with high levels of capitalization meeting the stringent listing requirements of the New York Stock Exchange, the S&P 500 serves as an appropriate proxy for comparison (e.g., Schaub, 2002Schaub, , 2003a.…”

Market timing and issue type effects on the performance of Mexican American depository receipts listed on the New York stock exchange

“…6 Because of being a broad and highly respected market measure, the S&P 500 Index represents the proxy for market performance.…”