Diversification and market risk exposure of single-listed versus dual-listed ADRs

The purpose of this paper is to contrast market risk exposure and diversification of single-listed American depository receipts (“ADRs”) with those of dual-listed ADRs from the same geographical region during 2004-2012.

The study uses orthogonal returns in two-factor models to infer exposure to the US and ADRs’ home markets.

The authors found that both ADR types provide no diversification and are significantly exposed to US market risk. The authors also found that portfolios of both single- and dual-listed ADRs behave significantly differently than their home markets.

Only several academic papers discuss single-listed ADRs, and to the best of the knowledge, this study is the first to assess their diversification value.