Abstract

While a healthy empirical literature exists on international diversification and its benefits, surprisingly few studies have examined the risk characteristics and efficacy of asset pricing models for one avenue of international diversification – investments in American Depository Receipts (ADRs). Originating in approximately 1927, ADRs provide an opportunity for investors to indirectly purchase shares of foreign firms. ADRs represent a claim to a given number of shares of a foreign firm held by a U.S. financial institution (e.g., Bank of New York). With the increasingly significant presence of ADR trading in the American stock markets – increasing six-fold between 1990 and 1999 - an analysis of these securities’ diversification impact on a U.S. stock portfolio and tests of the acuity of asset pricing models for predicting their returns should contribute to investors’ utility in efficiently diversifying risk.

Document Type

Article

Publication Date

2002

Publisher Statement

Copyright © 2002 Elsevier Inc.

The definitive version is available at: http://www.journals.elsevier.com/research-in-international-business-and-finance

Full citation:

Arnold, Tom, Lance Nail, and Terry D. Nixon. "ADR Risk Characteristics and Measurement." Research in International Business and Finance 16 (2002): 451-72.

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