Explaining Premiums in Restricted DR Markets and Theri Implicartions: The Case of Infosys

I examine several possible explanations for why Infosys' Deposirtary Receipts (DRs) trade at significant premiums to the equivalent underlying domestic shares. I find that a limited supply of DRs and a downwoard-sloping demand curve, significant transaction costs associated with investing directly in the domestic market, and trend-chasing by smaller and potentially uninformed investors partly explain the DR premiums. I also examine the wealth effects of non-capital raising secondary depositary receipt offerings by Infosys Technologies and find significant wealth transfers from existing DR holders to selling domestic shareholders who are comprised significantly of Infosys' founders.