Volatility shifts of Indian stocks surrounding global depositary receipt issues

Abstract

On average, Indian firms that issue equity-backed SEC Rule 144A and Regulation S Global Depositary Receipts (GDRs) in the US and Europe experience post-issue reductions in stock price volatility. Though the Indian index experiences similar declines. the decline in the • volatilities of individual firms is not driven strictly by systematic local-market disturbances. Nor are the declines associated with foreign-market influences. These findings support Bekaert and Harvey (I 997 and 2000) and Aggarwal, Inclan, and Leal (I 999) who report that changes in volatility in emerging markets come from local vis-a-vis global factors. However. the decline in our sample also results from firm-specific influences. Specifically, GDR issues help resolve home-market information quality problems as suggested by Damodaran (1985). Together,

our findings suggest that part of the decline in volatilities in earlier studies may relate to firm- specific events that contribute to. but are not uniquely associated with. the liberalization process.