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Global Financial Meltdown and the Stock Price Behavior of Underlying Domestic Shares of Listed Indian ADRs/GDRs Issues
Abstract
This paper investigates the impact of the Global Financial Meltdown of 2008 on the stock returns of the underlying domestic shares of the Indian companies' listed ADRs / GDRs issues in NYSE, NASDAQ and LSE. An event study was conducted on the stock returns of the underlying domestic shares of the 11 Indian ADRs and 17 GDRs. For the study 15th September 2008 was considered the event day when two important events announced related to the US based big financial Arms, first was about the bankruptcy of Lehman Brothers and second was about the sale of Merrill Lynch to Bank of America. The Abnormal Returns (ARs), Average Abnormal Returns (AARs) and Cumulative Average Abnormal Returns (CAARs) were computed based on the single index model using daily closing price data of the underlying companies and S&P CNX Nifty. The behavior of these variables was examined for 30 days before and 30 days after the event day. The study found that the impact of the announcement on the event day was significant for the basket of underlying domestic shares of Indian ADRs while insignificant for the basket of underlying domestic shares of Indian GDRs. However during the event window of 61 days (i.e. -30 to +30) AARs and CAARs were negative on most of the days for both the baskets of ADRs / GDRs, that clearly indicated that announcements possess important information which leads changes in the underlying stock prices. Therefore study concluded that the announcements about the failure of big financial institutions meltdown hold important information to the basket of underlying domestic shares of Indian ADRs / GDRs. Further the trend of CAARs that declined continuously even several days after the event day indicated slow assimilation of information to the stock prices that concluded that Indian stock market was inefficient in the semi strong form of Efficient Market Hypothesis (EMH) during the study period.
... For more information about the stock market and investor's sentiment can be referred to papers by Kenneth L Fisher [27], Chun Wang [28] and Agrawal. G [29], Xiaohui Qu [30] and Yongkai Ma [31]. ...
This paper examines the risks and returns of Indian stock's following cross listing on the U.S. stock exchanges. We find no significant change in returns and also no systematic change in the underlying stock volatility. The findings show that market risk is unaffected across the companies and any change in risk profile is due to the change in firm specific risk. The finding of no systematic change in volatility is consistent with the finding of prior study by T.F. Martell, et al. (1999) of Latin American ADRs. The finding differs from other results for ADRs on European stocks, but is consistent with several prior findings on international stock listings. The results support predictions of Domowitz, Glen and Madhavan's (1998) model on international cross-listings. This model predicts that effect of such listings will differ across stocks because the net effect is indicative of the specific trade-off for each individual stock between benefits of enhanced inter-market competition and costs stemming from the diversion of information linked orders out of the domestic market.
There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an efficient market, i.e., a market that adjusts rapidly to new information. It is important to note, however, that in the empirical work to date the usual procedure has been to infer market efficiency from the observed independence of successive price changes. There has been very little actual testing of the speed of adjustment of prices to specific kinds of new information. The prime concern of this paper is to examine the process by which common stock prices adjust to the information (if any) that is implicit in a stock split. In doing so we propose a new event study methodology for measuring the effects of actions and events on security prices.
This paper examines the impact of the listing of American Depository Receipts (ADRs) on the risk and return of the underlying stocks. We find that the listing of ADRs is associated with positive abnormal returns to the underlying stock on the listing day. In addition, our results suggest that the listing of ADRs are associated with permanent increases in the return volatilities of the underlying stocks. We interpret this evidence as consistent with the existence of informed traders in the markets in which the ADRs and the underlying stocks trade.
Between May 1992 and June 2001, seventy-two Indian companies tapped the international capital markets with their equity offerings in form of Depositary Receipts (DRs). Initially most of these programs were in form of Global Depositary Receipts (GDRs) and were traded on London and Luxembourg stock exchanges. Since 1999 many Indian companies have been listing their American Depositary Receipts (ADRs) on the U.S. stock exchanges. Home market responses to issuance of DRs are of interest to the policy makers, investors, market intermediaries, CFOs and finance scholars. Policy makers in emerging markets are increasingly concerned about the consequences for the domestic equity market when companies list stocks abroad. Present paper assesses the impact of listing of ADRs/GDRs on the liquidity of the firm's underlying domestic shares by using a sample of 30 Indian DR programs that listed on the foreign markets between 1st January, 1996 and 30th June, 2001. Consistent with the theoretical assertions and results of Domowitz, Glen and Madhavan (1998), we record mixed results- while ADRs listings in most cases reduce the liquidity of the domestic underlying shares, GDR listings in most cases increase the liquidity of the domestic underlying shares.
This study investigates the effect of merger bids on stock returns. Abnormal stock returns are examined throughout the entire merger process for both successful and unsuccessful merger bids. The evidence shows that increases in the probability of merger benefit the stockholders of target firms, and that decreases in the probability of merger harm the stockholders of both target and bidding firms. There is also evidence that the stock market forecasts probable merger targets in advance of any merger announcement, and because of this, previous studies have underestimated the market's reaction to merger bids.
This article examines the price formation process during dividend announcement day using daily closing prices and transactions data. The authors find that the unconditional positive excess returns, first documented by A. Kalay and U. Loewenstein (1985), are higher for small-firm and low-priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid-ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax-related ex-day trading. Rather, the price behavior is related to the absorption of dividend information. Copyright 1995 by American Finance Association.
This paper conducts a theoretical and empirical investigation of the pricing (and portfolio) implications of investment barriers in the context of international capital markets. The postulated market structure—labelled “mildly segmented”—leads to the existence of “super” risk premiums for a subset of securities and to a breakdown of the standard separation result. The empirical study uses an extended data base including LDC markets and provides tentative support for the mild segmentation hypothesis.
Sterlite) and 17 underlying domestic shares of the Indian GDRs listed in LSE ( Basket of GDRs comprises of : Amtek Auto, Axis Bank
- Nyse Nasdaq Infosys
- Hcl
- Wipro
- Tcs
- Mtnl
- Stayam
- Patni
NYSE / NASDAQ (Basket of ADRs comprises of : Dr. Reddy Laborateries, HDFC Bank, ICICIBank. Infosys, HCL,Wipro, TCS, MTNL, Stayam, Patni, Sterlite) and 17 underlying domestic shares of the Indian GDRs listed in LSE ( Basket of GDRs comprises of : Amtek Auto, Axis Bank, Crompton Greaves, EIH, Federal Bank, Financial Technologies, GAIL, Gitanjali Gems, Hexaware Tech, Himachal Futuristic, Indian Hotels, Lloyed Electricals, Noida Toll, PVR Venture, Reliance Infra, Rolta India, Subex). NSE website provides complete details of daily REFERENCES
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