Why are stock prices different in Russia and its ADR in NY?
What is responsible for this?
- 1 decade agoFavorite Answer
In an efficient market they should be the same.
But they're not because of
1. Timing (markets aren't open at the same time)
2. Volume (I'm guessing low volume of shares traded in Russia, or the ADR, so the market efficient price is harder to establish)
3. Foreign exchange (Ruble:USD isn't pegged exactly at all times)
There is the potential for arbitrage between the two, but you'd have to engage in exotic instruments (currency derivatives and long/short positions in two different markets), which requires much more investing savvy than I have! :)
- Anonymous1 decade ago
Currency. The stocks in Russia trade in local currency, the ADRs trade in US Dollars, the value is based on the underlying value of the stocks and the exchange rate of the currency. The Currency markets trade actively and are always moving in value versus each other, so the values will change as a result. They also trade on different exchanges so the demand isn't always the same, there is often arbitrage related to sentiment that effects the price as well.
- 1 decade ago
Market Sentiment and Exchange Rate