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I've been looking into the same question, and my takeaway so far is that ADR's are a "buyer beware" situation. Some ADR's are highly liquid, with tight bid/ask spreads and prices that are virtually identical to the underlying foreign stock, so they definitely are an easier and cheaper way to own the foreign stock than using a foreign brokerage account. But there are plenty of anomalies in ADR pricing too: if you Google "ADR mispricing" you will get tons of hits. Here's one academic paper that does a pretty good job of explaining the issue:

The author found cases where the ADR traded for anywhere from a 66% premium to an 87% discount vs. the underlying shares.

I stumbled into this a couple of weeks ago; was thinking about buying Groupe Danone ADR (DA), but then I discovered that it was trading at about a 9% premium to the underlying shares. (see That adds a big uncertainty to the investment, so I decided to stay away. But I have purchased several other ADR's that seemed to be trading in close proximity to their intrinsic value.
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