UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next
Author: bunkerbob Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 195  
Subject: Re: Buy ADR vs. directly from exchange Date: 2/6/2007 2:52 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
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 http://boards.fool.com/Message.asp?mid=25049550). 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.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next


Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Saul's Investing Discussions

Why Did I Buy a Bunch of PFIE Today?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.