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Asynchronous ADRs: overnight vs intraday returns and trading strategies

Jamie Kang (Columbia University, New York, New York, USA)
Tim Leung (University of Washington, Seattle, Washington, USA)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 2 October 2017




The purpose of this study is to analyze the overnight and intraday returns of the most traded American Depositary Receipts (ADRs) of Asian companies, understand the different levels of volatilities realized in these asynchronous markets and develop trading strategies based on empirical findings.


This study presents an empirical analysis on the overnight and intraday returns of Asian ADRs. The authors propose a measure to quantify the relative contributions of the intraday and overnight returns to the ADR's total volatility. Furthermore, the return difference between S&P500 index and each ADR is fitted to an Ornstein–Uhlenbeck model via maximum-likelihood estimation.


This study finds that ADRs' overnight returns are more volatile, whereas the intraday returns are significantly more strongly correlated with the US market returns. The return spreads between the S&P500 and ADRs are found to be a mean-reverting time series and motivate a pairs trading strategy.

Research limitations/implications

The methodology used in this study is not limited to Asian ADRs and can be adapted to analyze the overnight and intraday returns of other non-Asian ADRs and stocks.

Practical implications

Investors should be aware of the overnight price fluctuations while intraday traders may consider strategies that capture the mean-reverting return spread between an ADR (or an Exchange-Traded Funds [ETF] of Asian stocks) and the S&P500 index ETF (SPY).

Social implications

ADRs are among the most popular securities for investing in foreign (non-US) companies. The total global investments in ADRs are estimated to be close to US$1tn. Understanding the risks of ADRs is important to not only individual/institutional investors but also regulators.


This study provides a new measure to quantify and compare the relative contributions of volatility by overnight and intraday returns. Optimized pairs trading strategies involving ADRs and ETFs are developed and backtested.



This project is partially supported by the 2016 Dean’s Office Summer Research Fund provided by the Fu Foundation School of Engineering at Columbia University.


Kang, J. and Leung, T. (2017), "Asynchronous ADRs: overnight vs intraday returns and trading strategies", Studies in Economics and Finance, Vol. 34 No. 4, pp. 580-596.



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Copyright © 2017, Emerald Publishing Limited

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