The effects of market segmentation and investor recognition on asset prices¶

Foerster, S. R., & Karolyi, G. A. (1999). The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States. Journal of Finance, 54(3), 981-1013.

Type: Journal article
Intellectual base: Primary research
Year: 1999
Volume: 54
Issue: 3
Pages: 981-1013
ISSN: 0022-1082
DOI: 10.1111/0022-1082.00134
DOI registrant: Wiley
Link: https://doi.org/10.1111/0022-1082.00134
Cited from: economics_finance

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Primes¶

Arbitrage (Finance)
- Foerster and Karolyi (1999), studying non-U.S. firms cross-listing as ADRs, document persistent intraday and overnight basis gaps between home-market shares and U.S.-listed ADRs—gaps that arbitrageurs cannot fully close because cross-venue execution requires sequential trading across non-overlapping time zones, settlement systems, and currencies.
  This sourceDocuments large abnormal returns around cross-listings of non-U.S. firms as U.S. ADRs (+19% in the year before listing, +1.2% in the listing week, −14% in the year after), evidence that market segmentation and limited investor recognition keep segmented venues from converging—so time-zone, settlement, and currency frictions prevent perfectly simultaneous cross-venue arbitrage.

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