Price determinants of American Depositary Receipts (ADR): a cross-sectional analysis of panel data

Abstract

Evidence on ADR price discovery is provided using data for a large sample from 13 different countries for the period 1990 to 2000. Using Seemingly Unrelated Regression (SUR) and Feasible Generalized Least Squares (FGLS) models that incorporate both contemporaneous and lagged factors as exogenous variables in a cross-sectional panel data the findings indicate that movements in the underlying shares are the most influential factor affecting ADR prices. Further and contrary to the evidence provided in previous studies, the findings suggest that changes in the exchange rate significantly influence ADR prices. The results confirm previous findings that ADR price discovery occurs in the US stock market where they are listed and traded. Although, innovations in the home stock market do contribute to the ADR price discovery, its impact is not as strong as the one found for the innovations in the US stock market.