Market segmentation and the relative cost of trading american depository receipts

Abstract

(WP 06/04 Clave pdf) We compare trading costs between local stocks and their corresponding NYSE ADRs for Argentina, Brazil, Chile and Mexico.Results show that local stocks trading in Mexico and Chile exhibit higher costs than their ADRS,while Brazilian local stocks cost less. Argentina presents no significant differences. When we control for stock characteristics, the previous difference disappears for Brazilian and Chilean securities,while it is accentuated for Mexico. Local Mexican stocks are almost 3% of value traded more costly than their corresponding ADRs.Thus,Mexico presents cost barriers that inhibit the implementation of arbitrage transactions that facilitate stock price alignment.