Theses and Dissertations - UTB/UTPA

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Dr. Alberto Davila

Second Advisor

Dr. Robert Grosse

Third Advisor

Dr. Jose R. Hinojosa


The development of the American Depositary Receipt (ADR) market allows investors desiring to diversify in Latin America to follow three diversification strategies. First, they may invest in Latin American firms traded through ADRs in the U.S. equity market. Second, they may invest in the underlying stocks of Latin American ADRs traded in Latin American stock exchanges. Third, investors may invest in Latin American firms not cross-listed; hereafter called non-ADR firms, and traded in Latin American stock exchanges. This dissertation contributes to the current literature by investigating whether U.S. and Latin American investors improve portfolio performance by investing in ADR or non-ADR firms.

To undertake this study, I empirically test the impact of several sources of spillover effects on ADR and non-ADR firms by utilizing a vector autoregression (VAR) model. Spillover effects may be defined as the influence of recorded stock market returns in one equity market on the returns of another. In particular, the analysis focuses on spillover effects across the U.S. equity market, the Mexican ADRs and domestic equity markets, and the Chilean ADRs and domestic equity markets. The study concentrates on the 1995–1999 period associated with a growing phase of the Latin American ADRs market.

The findings indicate that equity market movements affect ADR and non-ADR firms differently and suggest several portfolio diversification strategies that might be worthwhile for investors. While investors might diversify internationally with any one of these securities, they improve diversification benefits by purchasing securities less sensitive to movements in their home equity markets. Indeed, the higher (lower) the sensitivity of these securities to movements in the investors' home equity market, the lower (higher) their benefits of diversification.

To illustrate, I find that non-ADR firms are less sensitive to movements in the U.S. equity market than ADR firms. Therefore, U.S. investors expand diversification benefits by investing in Chilean or Mexican non-ADR firms instead of ADR firms. Latin American investors in Chile or Mexico, in contrast, can improve portfolio diversification benefits by investing in domestic firms traded through ADRs. In this case, ADR returns would tend to be less highly correlated with the home equity market than returns of non-ADR firms.


Copyright 1999 Roberto Jairo Curci-Berrio. All Rights Reserved.

Granting Institution

University of Texas-Pan American