Political Risk and ADR Returns: Diversification in the Indian Sub‐Continent

Abstract

Terrorism, an important component of Political risk as a possible determinant of ADRs (American Depository Receipts) returns have received little attention in academic literature. To address this issue and examine whether political risk is a major determinant of ADR returns of emerging market countries, this paper empirically examines market valuation of Indian ADRs around acts of terrorism. Using a sample of 52 such events in the sample period Jan 2003‐Dec 2003 we empirically analyze returns of Indian ADRs. The results from our study indicate a marginally negative significant effect, failing to indicate that event of terrorist attacks severely affect the Indian ADRs listed on the US stock market. This may be explained by a combined effect of; (a) the optimism of US investors towards emerging markets, and (b) market participants becoming more resilient and making informed choices around the “general” events of terrorism.

Citation

Dania, A. and Verma, R. (2007), "Political Risk and ADR Returns: Diversification in the Indian Sub‐Continent", Journal of Asia Business Studies, Vol. 2 No. 1, pp. 58-66. https://doi.org/10.1108/15587890780001283