Theses and Dissertations - UTB/UTPA

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration

First Advisor

Dr. Andre V. Mollick

Second Advisor

Dr. Dave O. Jackson

Third Advisor

Dr. Marie T. Mora


Since 2003 Latin America has exhibited macroeconomic stability that starkly contrasts conditions in the 1990s. Capital flows from the United States to Latin American equity markets, particularly through American Depositary Receipts (ADRs), increased from 2003 until 2008 when they declined due to the global financial crisis. However, by 2010, capital flows to most Latin American countries exceeded their pre-crisis levels. In spite of the reported macroeconomic stability and rising capital flows, Latin American stock markets remain underdeveloped and exhibit low domestic liquidity. This dissertation analyzes the relationship between low domestic liquidity and the market for ADR issues from four Latin American countries—Argentina, Brazil, Chile and Mexico— during the relatively stable period of 2003-2010. This dissertation investigates whether liquidity influences the mispricing that arises between ADRs and their corresponding stocks trading in the domestic market. The results from panel regressions indicate that changes in liquidity are related to the price deviations between ADRs and their corresponding stocks. Furthermore, liquidity’s impact on mispricing varies across the four Latin American countries considered. In several cases, the impact is asymmetric with decreases in liquidity eliciting stronger price responses than equivalent increases.

This dissertation also examines the relationship between liquidity and price discovery for ADR issues from the aforementioned Latin American countries. The results, from vector error correction models that allow for an endogenous role of exchange rates, demonstrate that price discovery occurs primarily in the U.S. for firms from countries with lower levels of domestic liquidity like Argentina and Mexico. Furthermore, cross-sectional results support a positive relationship between home illiquidity and the U.S. market’s contribution to price discovery. Finally, this dissertation explores the role of ADR activity on the stock market development across the four Latin American countries. The results, from dynamic panel data estimators that allow for endogenous determination of ADR activity, indicate that ADR activity is detrimental to stock market development. In particular, higher ADR activity is associated with declining domestic market size and liquidity. However, these negative effects are mitigated by the positive effects on domestic market liquidity that arise as ADR programs become more liquid in the United States.


Copyright 2012 Alma Delia Hales. All Rights Reserved.

Granting Institution

University of Texas-Pan American