This paper investigates regularities in the daily pattern of Japanese ADR (American Depository Receipt) returns. Our findings indicate that the patterns of returns in the Japanese ADRs are affected by their trading in the US stock market. Specifically, Monday average returns are significantly lower on these ADRs than they are on their underlying securities. The reverse is found to be the case on Tuesdays, when average returns are lower on the underlying securities than they are on the ADRs. We also find that the differences in average returns between the Japanese ADRs and their underlying securities are positive on pre-holiday days in the US and negative on pre-holiday days in Japan. Further, we find that average ADR returns are significantly positive on Japanese holidays when their underlying securities are not traded in the home market. These results, therefore, suggest that the institutional and/or behavioural factors specific to the market in which securities are traded, can be a driving force behind the observed regularities.
Available at: http://works.bepress.com/alifatemi/12/