Essays in international finance.

Abstract

ADR share prices tend to deviate from their parity values under foreign ownership restrictions and other capital barriers. Time series of ADR premiums or discounts under such capital barriers provide an opportunity to examine the existence of a U.S. specific factor or U.S. investor sentiment. The first chapter studies a sample of ADRs from emerging countries and finds that ADR premium changes tend to comove with the aggregate U.S. market returns. This result suggests the existence of a U.S. specific factor or U.S. investor sentiment, echoing Bodurtha, Kim and Lee's result in their study of closed-end country fund premiums. The second chapter studies the equity home bias puzzle by examining international portfolios recommended by institutional investors. These recommended portfolios from the <italic>Economist</italic> quarterly poll allow us to isolate the role of information asymmetry in international portfolio investments. The results show that home bias is observed both in the level of portfolio holdings and in the frequency of portfolio adjustments. Specifically, institutions recommend their home markets more than they do foreign markets and they change their home market weights more frequently than they change foreign market weights. The evidence in this study is consistent with the information asymmetry story of home bias.