Short selling of ADRs and foreign market short-sale constraints

摘要

We examine the effect of home market short-sale constraints on securities that also trade in other countries that have more liberal short-sale rules. In particular, we focus on the case of ADRs traded in the US, as in some cases, the home markets of these ADRs prohibit short selling. We find that short sellers more heavily trade ADRs from countries where short selling is prohibited than from markets where short selling is allowed. Furthermore, we find that the greater levels of short selling in ADRs with binding home-market constraints is driven by stocks with greater dispersion of investors' opinion, low funda-mentals-to-price ratios, and recent price increases. Our results support the hypothesis that short sellers target ADRs with home market short-sale constraints because these ADRs are more often subject to temporary misvaluation.