ADR's - Bad for Large Asset Managers

10 points to the person that can explain why ADR’s are a bad way to gain exposure to an emerging market.

i can think of a few reasons - 1. Liquidity in ADRs is lesser as not all the shares trade on the US exchanges, and hence can be more volatile. 2. May have substantial premium/discount to actual stock value in the emerging market due to scarcity. 3. ADRs trade during non-market hours for emerging markets and may not capture all the current news information.

Man, I would be toast on that Q.

I would write something up. But something i would come up just from logic of the question. I never came up across this material in readings

  1. ADR’s consist only of select companies so it’s hard to get exposure to the whole market 5) You either have to own companies that are big enough to deal with US GAAP as emerging markets companies or be ready to buy L1 ADR’s and Reg S stuff (too scary for me).

Joey’s #4 was the only thing I could think of. There’s a representation bias to get general EM exposure, but there of course might be other reasons to buy them, like… you think they’re undervalued based on some fundamental analysis.

i thought ADR is not a good exposure since they will be exposed to risks in the country where they are inc. (I was assuming we are talking about L3 adrs)