ADRs and U.S. market sentiment

Abstract

ADR share prices tend to deviate from their parity values under foreign own- ership restrictions and other capital barriers. Time series of ADR premiums or

discounts under such capital barriers provide an opportunity to examine the ex- istence of a U.S. specific factor or U.S. investor sentiment. This paper studies a

sample of ADRs from emerging countries and finds that ADR premium changes tend to comove with the aggregate U.S. market returns. This result suggests the existence of a U.S. specific factor or U.S. investor sentiment, echoing Bodurtha, Kim and Lee's result in their study of closed-end country fund premiums.