The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States

Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositar y Receipts earn cumulative abnormal returns of 19 percent during the year b efore listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how t hese unusual share price changes are robust to changing market risk exposur es and are related to an expansion of the shareholder base and to the amoun t of capital raised at the time of listing. Our tests provide support for t he market segmentation hypothesis and Merton's (1987) investor recognition hypothesis.