Financial Returns of Pharmaceutical American Depository Receipts (ADRs): Do They Perform Better than U.S. Pharmaceuticals or S&P 500?
Prior research on the performance of American Depository Receipts (ADRs) from the market timing perspective mainly measured cumulative excess returns in 21-day or 3- year windows. These studies did not investigate ADRs performance from a risk-free perspective or their performances within a specific industry. Filling this gap of knowledge, this research introduces the concept and measurement of risk-free returns of ADRs in 17 years (2000 to 2016) within the healthcare industry. For risk-free measurement, we use the Sharpe ratios in which a 91-day US Treasury bill is a proxy of a risk-free rate. We chose pharmaceutical ADRs and compared their returns with U.S. pharmaceuticals and S&P 500 Index. Our non-parametric tests of Sharpe Ratios suggested that the distribution of Sharpe Ratios of ADRs, U.S pharmaceuticals, and S&P 500 have the same medians. These findings have nuanced differences from prior research. Our findings have managerial implications.
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