Investing in Emerging Equity Markets: The Case of Chinese ADRs versus B Shares

Ursel, Nancy; Xiaohua Lin; Li, Jessica
September 2006
Multinational Business Review (St. Louis University);Fall2006, Vol. 14 Issue 2, p83
Academic Journal
Chinese companies have recently started listing ADRs in North American stock exchanges and thus offered an alternative venue for Western investors whose access to the Chinese market has largely been limited to the illiquid B shares. Are ADRs a good substitute for investing in Chinese B Shares? We examine characteristics of return distributions for indices of Chinese shares and an index of Chinese ADRs. We also compare efficient frontiers for portfolios including Chinese shares and Chinese ADRs and compute possible portfolio allocations. We find that investing in Chinese ADRs does not provide a risk/return tradeoff similar to direct investment in Chinese stock exchanges.


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