The Impact On Risk And Return Of Listing Indian Stocks On US Stock Exchanges
This paper examines the risks and returns of Indian stock’s following cross listing on the US stock exchanges. We find no significant change in returns and also no systematic change in the underlying stock volatility. The findings show that market risk is unaffected across the companies and any change in risk profile is due to the change in firm specific risk. The finding of no systematic change in volatility is consistent with the finding of prior study by TF Martell, et al.(1999) of Latin American ADRs. The finding differs from other results for ADRs on European stocks, but is consistent with several prior findings on international stock listings. The results support predictions of Domowitz, Glen and Madhavan’s (1998) model on international cross-listings. This model predicts that effect of such listings will differ across stocks because the net effect is indicative of the specific trade-off for each individual stock between benefits of enhanced inter-market competition and costs stemming from the diversion of information linked orders out of the domestic market.