PROXIMITY PREFERENCE AND MARKET LIQUIDITY: EVIDENCE FROM LATIN AMERICAN ADRS

Abstract

Extant research posits that host country investors value geographical proximity and familiarity. American investors are likely to be more familiar with business, legal and economic conditions of Latin America compared to distant emerging market countries. Furthermore, the trading time of Latin American stock markets overlap significantly with that of U.S. markets. Therefore, we expect Latin American ADRs to enjoy better liquidity than ADRs from other emerging markets. Consistent with our expectations, we find weak evidence that ADRs from Latin America have lower effective spreads and adverse selection component of spreads compared to ADRs from other emerging markets.

Citation

Krishnamurti, C. and Šević, A. (2005), "PROXIMITY PREFERENCE AND MARKET LIQUIDITY: EVIDENCE FROM LATIN AMERICAN ADRS", Arbelaez, H. and Click, R.W. (Ed.) Latin American Financial Markets: Developments in Financial Innovations (International Finance Review, Vol. 5), Emerald Group Publishing Limited, Leeds, pp. 305-327. https://doi.org/10.1016/S1569-3767(05)05014-4