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Journal of Economics and Finance

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30-08-2018

Which sentiments do US investors follow when trading ADRs?

Authors: Yaseen S. Alhaj-Yaseen, Dana Ladd

Published in: Journal of Economics and Finance | Issue 3/2019

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Abstract

This study examines herding tendency in the market for American Depository Receipts (ADRs) by analyzing daily data from 343 ADRs listed on the US stock exchange. Using two different approaches, Christie & Huang (Financ Anal J 51(4), 31–37, 1995) and Chang et al. (J Bank Financ 24(10), 1651–1679, 2000) showed that US investors do not herd when trading domestic stocks. We extend these works by using the same approaches to investigate whether US investors herd when trading registered ADRs. Two types of herding are considered in our analysis: informational cascades and investigative herding. We find strong evidence that US investors follow the same signals when trading ADRs rather than following others’ trades. Specifically, they have a tendency to herd around the ADRs’ home market indexes. These results suggest that such herding is based on value-relevant information, which is consistent with the presence of investigative herding.

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Karolyi (2006) provides an excellent overview of the main features of all ADR programs.

These figures are based on the date we accessed from The Bank of New York Mellon’s DR directory on October 7, 2016.

The significant difference between CSSD_t and CSAD_t measures can be attributed to the method used to calculate each one of them. While standard deviation measure is used to calculate CSSD_t, the average absolute deviation (or mean absolute deviation) measure is used to calculate CSAD_t as shown in equations (1) and (3). Given that the square root function is concave, it is expected for CSAD_t to be always less than CSSD_t.

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Title: Which sentiments do US investors follow when trading ADRs?
Authors: Yaseen S. Alhaj-Yaseen
Dana Ladd
Publication date: 30-08-2018
Publisher: Springer US
Published in: Journal of Economics and Finance / Issue 3/2019
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-018-9452-z

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