Is the Grass Greener on the Other Side? A Comparison of Compounded Year-to-Year Long-term Performance of American Depository Receipts and Equities of U.S. Pharmaceuticals

Previous research has compared the returns of American Depository Receipts (ADRs) and stock indices (e.g., NASDAQ, S&P500), but did not compare the compounded yearto-year buy-and-hold returns of ADRs at the individual stock level within a specific industry. For portfolio diversification purposes, it is possible that investors buy-and-hold certain ADRs for a period longer than three years. As such, it is important for both institutional and individual investors to evaluate the returns of ADRs in more details, so they can make informed investment decisions. Filling this gap of knowledge, this research selected eleven pharmaceutical ADRs from eight countries that are listed in NYSE from 2000 to 2016 and compared them against five major U.S. pharmaceutical companies during the same time period. The focus on pharmaceutical industry is because U.S. is the largest single pharmaceutical market in the world with a 45% market share. Our empirical results found most ADRs over-perform when compared to U.S. pharmaceuticals during this time period. The non-parametric test results confirmed that the returns of ADRs and U.S. pharmaceuticals are not the same, and ADRs no the whole had higher returns than U.S. pharmaceuticals and S&P 500. The findings have important managerial implications.