Terrence F. Martell

The impact of listing Latin American ADRs on the risks and returns of the underlying shares

This paper examines the risks and returns of Latin American stocks following American depository receipt (ADR) listings in U.S. equity markets and finds no systematic change in their volatility. This finding differs from previous results for ADR introduction on European and Asian stocks, although it is consistent with several prior findings on international stock listings. Importantly, it supports the predictions of Domowitz, Glen, and Madhavan’s 1998 model of international cross-listings. This model predicts that the effects of such listings will differ across stocks because the net effect is indicative of the specific trade-off for each individual stock between benefits of enhanced intermarket competition and costs stemming from the diversion of information-linked orders out of the domestic market.

A New Look at Hedging with Derivatives: Will Firms Reduce Market Risk Exposure?

This study examines derivatives use of foreign exchange, interest rate, and commodities risk by nonfinancial firms across multiple industries, using data from 1995 to 2001. This work considers the interaction of a firms risk exposures, derivatives use, and real operations simultaneously, and considers how these factors change over time using a consistent database. Hedging with derivatives is only signi.cantly related to commodity risk exposure during most years of the study, and to a more limited degree to interest rate exposure. Further, a strong correlation was found between risk exposures for some years using a new technique, suggesting that univariate modeling is not always appropriate. The implications are that hedging with derivatives is not always important to a firms rate of return and is linked to other nonfinancial and economic factors.

Derivative Usage in the Gold Market and its Impact on Spot Gold

Gold and gold-based derivatives are traded all over the world, by gold producers, jewelry fabricators, investors, and central banks. This article reports on thegold derivatives markets in three major trading centers: Australia, Europe, and N e w York. The authorsjnd both dgerences and similarities across markets, consistent with the dflerent needs and interests of the local clienteles. The Sydneygold trade is tied to the rapidly expanding Australian gold mining industry, while the European dealers service the more mature South African mines,. as well as the central banks. A l l types ofcustomers are active in the US., where dealing operations are closely tied to trading in gold futures on the Comex.