1. American Depository Receipts Sherry Chen Andrew Frankel Christina Nitz Jean Yu NYFC Partners February 27, 2002

2. Agenda ADR Basics Hypothesis Methodology Data Set Regression Results Concluding Remarks Future Research Topics

3. ADR Basics Generally represent a non-U.S. company’s publicly traded equity Overcome many inherent operational and custodial hurtles of international investing Growth of the market primarily driven by institutional investors 75% of U.S. institutional investors own ADRs

4. Hypothesis Abnormal ADR trading volume possesses predictive power for associated index returns due to the fact that ADRs are primarily invested in by more sophisticated institutional investors

5. Regression Methodology Moving Average Over Past Twelve Months Dependent variable Country return Independent variable Monthly ADR volume minus past twelve month average trading volume

6. Regression Methodology Residuals Against S&P 500 Trading Volume First Regression Dependent variable –ADR trading volume Independent variable –S&P 500 trading volume Second Regression Dependent variable –Country return Independent variable –Residuals of first regression

7. Data Set 17 countries –7 developing –10 developed Pulled all available data from 1970 through 2000 376 ADR issues selected Source: Data Stream and Compustat

8. Regression Results

9. Abnormal Trading Over Twelve Month Moving Average

10. Abnormal Trading Over S&P 500 Index

11. 3% 23% 2% 57% 27% 9% 17% 84% 40% 30% 79% 70% 14% 85% 19% 60% 77% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Argentina Brazil Chile China India Mexico South Africa Australia France Germany Ireland Italy Japan Netherlands Spain Switzerland United Kingdom P-Value of ADR Trading Volume Developing CountriesDeveloped Countries

12. Concluding Remarks Abnormal ADR trading does posses predictive power for index returns in some markets. The predictive power is more predominant for developing countries than developed countries. One possible explanation of our observation is that developing markets are less transparent.

13. Future Research Topics Future research might include: –Data refinement –Multi-variant regression –Out of sample testing