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The IUP Journal of Management Research : |
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Description |
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The
notion of free markets will remain empty and rhetoric, unless companies are able
to raise capital from anywhere in the world. An increasing number of developing
countries are removing trade barriers, dismantling capital control, encouraging
foreign investment, and opening up their economies. Global financial markets have
undergone far reaching changes which stem from the following interrelated factorsprogressive
deregulation of financial markets, internationalization of financial markets and
introduction of a variety of instruments like ADRs, allowing more risk than normal
and larger financial investments. Indian corporates' access to equity capital
had been confined to domestic capital market until 1999. This year, for the first
time, Indian companies raised equity from the Wall Street. Its success turned
the ADR dream into reality. It was observed that these ADRs enjoy a considerable
premium over their underlying stock price. According to Chakrabarthi (2001), it
is particularly noteworthy, because during that period, the Indian market was
open to foreign institutional investors and the existence of such a premium arbitrage
opportunities. The introduction of the twoway fungibility in 2002 was an attempt
to lessen the premium/discount and consequently, reduce the scope for arbitrage.
This
paper is divided into eight sections. The present section is the introduction
to the study. The next section gives a conceptual overview of ADRs. The third
section provides a literature survey. The fourth section explains the concept
of twoway fungibility. The fifth section describes the methodology adopted. The
effects of twoway fungibility on ADR returns are analyzed in the sixth section.
The seventh section examines the effect of the announcement of twoway fungibility
on returns in the Indian stock market. The last section contains a summary of
the entire paper. |
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Keywords |
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Management Research Journal, Domestic Capital Market, Financial Markets, American
Depositary Receipts, ADRs, Foreign Capital Markets, Morgan
Trust Company, Global Depositary Receipts, Market Segmentation, Indian Companies, Foreign Institutional
Investors, FIIs, Multiple Linear Regression, Indian Markets.
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