Is there timing ability in currency markets? Evidence from ADR issuances

Zhu, Qiaoqiao & Pasquariello, Paolo (2010) Is there timing ability in currency markets? Evidence from ADR issuances. In NBER Summer Institute 2010 : International Finance and Macroeconomics Workshop, 12 July - 5 August 2010, Cambridge, Massachusetts. (Unpublished)


Is there timing ability in the exchange rate markets? We address this question by examining foreign firms' decisions to issue American Depositary Receipts (ADRs). Specifically, we test whether foreign firms consider currency market conditions in their ADR issuance decisions and, in doing so, display some ability to time their local exchange rate market. We study ADR issuances in the U.S. stock market between 1976 and 2003. We find that foreign firms tend to issue ADRs after their local currency has been abnormally strong against the U.S. dollar and before their local currency becomes abnormally weak. This evidence is statistically significant even after controlling for local and U.S. past and future stock market performance and predicable exchange rate movements. Currency market timing is especially significant i) for value companies, relatively small (yet absolutely large) companies issuing relatively large amounts of ADRs, companies with higher currency exposure, manufacturing companies, and emerging market companies, ii) during currency crises (when mispricings are rife) and after the integration of the issuer's local financial market with the world capital markets, iii) when the ADR issue raises capital for the issuing firm (Level III ADR), and iv) regardless of the identity of the underwriting investment bank. Currency market timing is also economically significant since it translates into total savings for the issuing firms of about $646 million (or 1.86% of the total capital-raising ADR issue volume). In contrast, we find no evidence of currency timing ability in a control sample made of non-capital raising ADRs (Level II ADRs). These findings suggest that some companies may have, at least occasionally, private information about foreign exchange.

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ID Code: 32545
Item Type: Conference Paper
Refereed: No
Additional URLs:
Keywords: Market Timing, Exchange Rate, ADR.
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > International Economics and International Finance (140210)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2010 [please consult the authors]
Deposited On: 09 Jun 2010 22:00
Last Modified: 10 Aug 2011 16:45

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