In this paper, the authors study the risk profile of American depositary receipts (ADRs) from China before and after COVID-19. The sample includes both single and dual-listed ADRs.
The authors consider three classical risk metrics: total risk (standard deviation of returns), systematic risk (beta) and idiosyncratic or specific risk (standard deviation of the residuals of a market model regression), to examine and contrast the risk estimates of single-listed ADRs with those attained by dual-listed ADRs.
The authors find that single-listed ADRs are riskier than their dual-listed counterparts and single-listed investors are not compensated for the extra risk they bore during this special time in history.
Examining the risk profile of single-listed ADRs is important for investors as they trade daily in US exchanges, but their underlying stock is not listed in their home market. This distinctive characteristic represents an additional risk to investors, given that if the ADR program closes, they will be left with unlisted and illiquid ordinary shares.
