bando, chugh, grant - adr characteristics and performance.pdf

ADR Characteristics and Performance In International and Global Indexes Arindam Bandopadhyaya Lal Chugh James Grant UMBCMWP 1035 December 2007 ADR Characteristics and Performance In International and Global Indexes Arindam Bandopadhyaya Chairman and Professor Department of Accounting and Finance University of Massachusetts Boston MA 02125 Arindam.Bandopadhyaha@ Lal Chugh Professor of Accounting and Finance University of Massachusetts Boston MA 02125 Lal.Chugh@ James L. Grant JLG Research and Assistant Professor of Accounting and Finance University of Massachusetts Boston MA 02125 jim@ We thank Lawrence Franko, Senior Investment Professional, International Value Equity Group, and Sharon Hill, Head of Equity Quantitative Research Analytics, at Delaware Investments for assistance in the development of this paper. The ADR data used in this study was provided to us by Delaware Investments, a subscriber to MSCI BARRA via Factset. December 10, 2007 2 Abstract This study looks at the characteristics and performance of ADRs in international and global indexes. We find that ADRs in EAFE are tilted toward three common factors: giant cap, high dividend yield, and U.K. stocks. In terms of risk-adjusted performance, we find that ADRs provide inefficient diversification for US investors, as tradeoffs of return and risk are better with portfolio combinations of the SP500 and the SP Global 700, as compared with portfolio combinations of the SP500 and an ADR breakout of the Global 700. Our findings on ADR characteristics are consistent with prior research, while our performance findings are inconsistent with prior research which points to ADR portfolio efficiency.