The Relationship Between Returns of American Depositary Receipts and Exchange Rates. - Indian Journal of Economics and Business

The Relationship Between Returns of American Depositary Receipts and Exchange Rates.

By Indian Journal of Economics and Business

  • Release Date - Published: 2006-12-01
  • Book Genre: Business & Personal Finance
  • Author: Indian Journal of Economics and Business
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The Relationship Between Returns of American Depositary Receipts and Exchange Rates. Indian Journal of Economics and Business read online review & book description:

Abstract Investing in ADRs requires American investors to be exposed to risks that do not exist in domestic investments. Although ADRs and their dividends are denominated in the U.S. Dollar, they are still influenced by political and economic risks of the foreign country of the underlying asset. The general consensus has been that there is a strong negative correlation between the international value of the U.S. Dollar and ADR performance. In this study, we provide an empirical analysis of the relationship between foreign exchange rates and returns of ADRs. Using daily data over the 2002-2004 period, we find no significant relationship between the returns of the ADR Indices and the international value of the U.S. Dollar. We conclude that the international value of the U.S. Dollar is not an adequate indicator of the performance of ADRs.

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