Impact of Cross-listing on Local Stock Returns: Case of Russian ADRs

Abstract

The paper examines the impact of American Depositary Receipt (ADR) listings on the return of the underlying Russian stocks. The contribution of this paper is twofold. First, it looks at a new sample of ADRs issued by Russian companies. Second, the technique used to estimate the market model is different from the previous studies. The returns are modeled to follow GARCH process, as opposed to the regular OLS procedure, which assumes homoscedasticity in residual returns. Average abnormal returns and cumulative average abnormal returns are calculated for the [-25, +25] event window, with the ADR listing date being the event date. The results indicate a significant negative abnormal local market return on an ADR listing day. The return volatilities after the listing are compared to those before the listing. Eleven out of sixteen companies experienced increased volatility of local returns after the cross-listing.