Impact of ADR Listing on the Trading Volume and Volatility in the Domestic Market

Ejara, Demissew D.; Ghosh, Chinmoy

Volume 8, Numbers 3 & 4 / September/December , Pages 141-274

Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 247-274

Demissew Diro Ejara , Fairleigh Dickinson University, U.S.A. Corresponding Author

Chinmoy Ghosh , University of Connecticut, U.S.A.

Abstract:
This paper investigates the impact of ADR listing on the trading volume and volatility of the domestic market. Existing theories indicate that trading shifts to a market with lower transaction costs, and the level of volatility is directly related to the level of trading activity. The analyses provide empirical evidence showing increase in both trading volume and price volatility in the domestic market after ADR listing. The increase in volatility is attributed to noise resulting from public information as opposed to from increased trading friction. This suggests improvement in liquidity following ADR listing. Comparison across country groups indicates marginally higher gain for emerging market stocks although the difference is not statistically significant. Auction type markets gain more in terms of increase in trading volume than dealer type markets

Keywords : ADR; cross listing; market segmentation; market liquidity.; transparency
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