Southern Illinois University Edwardsville, Edwardsvilles
Ali M. Kutan a,b,c,d, e,1
Borsa Istanbul, Turkey
The William Davidson Institute, University of Michigan Business School
The Emerging Markets Group, Sir Cass Business School
Institute of Financial Studies, Southwestern University of Finance and Economics
This paper extends the research on investor herds to American Depository Receipts (ADRs). Using
daily price data on 305 ADRs traded inUS exchanges issued by corporations from19 countries,we
examine herding behavior in the market for ADRs within country and sector-based portfolios.
There is significant evidence of herding behavior in the market for ADRs from Chile only
regardless of alternativemodel specifications. On the other hand,we find a significant effect of the
Asian crisis and the recent creditmarket crisis on herding behavior in ADR issues from Korea and
the UK, respectively, suggesting a link between market crisis periods and herding behavior.
Furthermore, we find no significant effects of currency rates (except Korea) or the performance of
the market of origin on herding behavior among ADR issues. In the case of sector-based ADR
portfolios, evidence of herding behavior exists in Basic Industries, Capital Goods, Food & Tobacco,
and Textile & Trade, but only during periods of large market downturns. Overall, herding ismore
prevalent at the sector level than the country level for the markets for the ADRs.