Understanding the ADR Premium under Market Segmentation

Understanding the ADR premium under market segmentation by Matthieu Stigler, Ajay Shah and Ila Patnaik.

The abstract reads: Capital controls can induce large and persistent deviations from the Law of One Price for cross-listed
stocks in international capital markets. A considerable literature has explored firm-specific factors which influence ADR
pricing when LOP is violated. In this paper, we examine the interlinkages between Indian ADR premiums and macro economic
time-series. We construct an ADR premium index, whereby diversification across firms diminishes idiosyncratic
fluctuations associated with each security. We find that the S&P 500 index and the domestic Nifty index influence the ADR Premium
Index. Positive shocks to the ADR premium index precede higher purchases by foreign investors on the domestic market, and
precede positive returns on the domestic index.

You might like to see: the stock of papers from the NIPFP Macro/Finance Group.

Economic Events on August 19, 2010

At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report.  The consensus is that there were 480,000 new jobless claims last week, which would would be an slight increase in claims from last week’s number, which was the highest since February.

At 10:00 AM EDT, the Leading Indicators report for July will be released.  The consensus is that this index increased by 0.1% last month as mixed signals about the economy continue.

Also at 10:00 AM EDT, the Philadelphia Fed Survey report for August will be released.  The consensus is that the index will be at 7, which would be an increase of 2 points, though still lower than June’s index value.

At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.

At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.

Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.