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One of my favorite on-again-off-again recovery plays is Mittal Steel (NYSE: MT).

I buy the MT ADR there (American Depositary Receipt) because I live in the US.

Am I exposing myself to any extra risk owning the ADR instead of the underlying stock? Has there ever been any sticky issues with ADRs not performing exactly like the underlying stock?

I understand the benefits of ADRs, just wondering if there are downsides.

John Shedletsky
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1 Answers1

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Yes, the ADR will trade on a separate exchange from the underlying one, and can (and does) see fluctuations in price that do not match the (exchange corrected) fluctuations that occur in the original market.

You are probably exposing yourself to additional risk that is related to:

  • Financial market volatility
  • Trading patterns in the american market
  • Taxation, trade and other issues that stem from international relations (imagine an ADR where the foreign country's relations with the US quickly deteriorate; it's USD value may fall in lock-step, dropping to below its native currency value)
  • Loss of liquidity (ADRs often tend to be more difficult to sell)
blueberryfields
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