Valuation impact of currency crises: Evidence from the ADR market |
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Authors: | Feng-Shun Bin Dar-Hsin Chen |
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Institution: | a Department of Business Administration, University of Illinois, USA b Department of Finance and Business Law, Belk College of Business, University of North Carolina-Charlotte, Charlotte, NC 28223-0001, USA c Department of Banking and Finance, Tamkang University, Taiwan |
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Abstract: | This study analyzes American depository receipts (ADR) performance surrounding the outbreak of major currency crises during the past decade. By employing event-study methodologies and multifactor pricing models, we find that the outbreak of a currency crisis is accompanied by a negatively significant abnormal return for the corresponding ADRs, even after controlling for variations in exchange rates. We also find significant upward shifts in the exchange rate exposure of ADRs when the home currency is switched from a “pegging” to a “floating” exchange rate regime. In addition, ADR-originating firms with larger sizes, greater proportions of U.S. market activities, and greater market liquidity have relatively less negative abnormal returns (ARs) and less significant upward shifts in currency exposure, implying that such firms are relatively better hedged against currency crises. |
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Keywords: | ADR Currency crisis International portfolio diversification Exchange rate exposures |
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