adr premium variation,s&P 500, adr

1. ADR Premium variation under Macroeconomic influence Submitted by- Abhinav Arya abhinavarya224@gmail.com

2. Contents Introduction Motivation Project Objective & Scope Methodology Analysis Assumptions Conclusion References

3. Introduction American Depository Receipts(ADR) : Similar to domestic shares but traded in foreign Stock Exchange. Ideally , American Depository Receipts(ADR) and domestic shares should have same price.

4. Introduction Law of One Price violation is expected due to Possibility of ADR Arbitrage due to Capital Controls Time zone Difference in S&P 500 & NSE [No Common Trading Hours]

5. Indian Capital Controls permits conversion to ADR if No. of ADR outstanding <> No. of ADR Issued If ADR Price < Domestic Share Price then If ADR Price > Domestic Share Price then Factor: Capital Controls Buy ADR Convert to Shares Sell in India Buy Share Convert to ADR Sell in Foreign

6. Factor : Time Zone No Overlapping Trading Hours between S&P 500 and NSE.

7. Factor : Time Zone News about global economy & India after closure of Indian market impounds ADRs. Direct investment in Indian Equities is only possible for registered FIIs.

10. Data gathering from official Stock websites. Index Creation & Quantitative Analysis Analysis of 5 Major stocks across sectors Post recession Analysis Project Scope

11. Methodology Stock inputs from NSE and US share markets Creation of ADR Premium Index Time series relationship study Correlation & regression ANOVA(Analysis of Variance) Sensitivity Analysis etc.

12. Indian ADRs * ADR prices as on 11 February 2011* Domestic prices as on 11 February 2011

13. Methodology Data Range : Jan 2007 to Dec 2010 Data Collected from Leading Equity websites Stock Selection criteria : Highly liquidity, Large Volume, Market Capitalization in US

15. Nifty Index

16. S & P 500 Index

17. ADR Premium Index

19. Time Series

20. Conceptual Framework Price of “i”th ADR on day “d” = PADR Price of “i”th Domestic Stock on day “d” = PDM Curreny Exchange rate = ED Conversion ratio of domestic stock into ADR = α ADR premium index is calculated as mean of ADR premium of five stocks.

21. ANALYSIS : Correlation

22. IMPULSE Response Analysis

23. ANALYSIS : Descriptive Stats,Collinearity

24. Assumptions Conversion Factor considered as 1 Stock value of First Day of the month was considered to evaluate the trend. Closing price of each Index is considered on a particular day

25. Conclusion With respect to Law of One Price(LOP), ADR price is non- informative. Indian ADRs have positive premium. Macro economic factors [Currency rate, Nifty, S&P 500,FII etc. influence ADR Premium Index. Positive Shocks to S&P 500 raises ADR Premium & FII.[Optimism & gains of US market tend to be transmitted to other markets through ADR or FII]

26. Conclusion Positive Shocks to Nifty leads to decrease in ADR Premium. Inference: Positive shock to ADR Premium Index has Positive effect on FII purchases in FOLLOWING DAYS. [ When demand of Indian Equities goes Up, ADR market in New York shows this first. After this demand comes to domestic market.]

27. References Websites http://www.forexpros.com/currencies/usd-inr-historical-data http://www.forecasts.org/data/data/EXINUS.htm http://investing.businessweek.com/research/stocks/snapshot/historical.asp?ticker=INFY:US http://infosys-adrchart.blogspot.com/ http://simulator.investopedia.com/stocks/IBN/historical Journal Understanding the ADR premium under market segmentation- Matthieu Stigler Book Statistical Methods for Practice and Research (Gaur)

28. Thank You