International Diversification : A Comparison of Performance of American Depository Receipt Indices and Country Funds

This study evaluates country funds versus American Depository Receipts (ADRs) as tools for international diversification. A portfolio of available ADRs from a specific country (i.e. an ADR index) should provide similar returns to an indexed country fund. We found, however, that ADRs provided superior returns in the majority of cases. This study also attempts to evaluate the impact of trading volume on portfolio performance. In comparison to ADR indices, the country funds had generally higher trading volume. The results of causality tests, though, were mixed, and more research over a longer time period may be needed to address this issue