An American Depositary Receipt (ADR) is a certificate that represent shares of a foreign stock

owned and issued by a U.S. bank. The foreign shares are usually held in custody overseas, but the
certificates trade in the U.S. Through this system, a large number of foreign-based companies are
actively traded on one of the three major U.S. equity markets (the NYSE, AMEX or Nasdaq).

How It Works/Example:

Investors can purchase ADRs from broker/dealers. These broker/dealers in turn can obtain ADRs for
their clients in one of two ways: they can purchase already-issued ADRs on a U.S. exchange, or
they can create new ADRs.

To create an ADR, a U.S.-based broker/dealer purchases shares of the issuer in question in the
issuer's home market. The U.S. broker/dealer then deposits those shares in a bank in that market.
The bank then issues ADRs representing those shares to the broker/dealer's custodian or the
broker-dealer itself, which can then apply them to the client's account.

A broker/dealer's decision to create new ADRs is largely based on its opinion of the availability of the
shares, the pricing and market for the ADRs, and market conditions.

Broker/dealers don't always start the ADR creation process, but when they do, it is referred to as an
unsponsored ADR program (meaning the foreign company itself has no active role in the creation of
the ADRs). By contrast, foreign companies that wish to make their shares available to U.S. investors
can initiate what are called sponsored ADR programs. Most ADR programs are sponsored, as
foreign firms often choose to actively create ADRs in an effort to gain access to American markets.

ADRs are issued and pay dividends in U.S. dollars, making them a good way for domestic investors
to own shares of a foreign company without the complications of currency conversion. However, this
does not mean ADRs are without currency risk. Rather, the company pays dividends in its native
currency and the issuing bank distributes those dividends in dollars -- net of conversion costs and
foreign taxes -- to ADR shareholders. When the exchange rate changes, the value of
the dividend changes.

For example, let's assume the ADRs of XYZ Company, a French company, pay an annual cash
dividend of 3 euros per share. Let's also assume that the exchange rate between the two currencies
is even -- meaning one Euro has an equivalent value to one dollar. XYZ Company's dividend
payment would therefore equal $3 from the perspective of a U.S. investor. However, if the euro were
to suddenly decline in value to an exchange rate of one euro per $0.75, then the dividend payment
for ADR investors would effectively fall to $2.25. The reverse is also true. If the euro were to
strengthen to $1.50, then XYZ Company's annual dividend payment would be worth $4.50.

Why It Matters:

ADRs give U.S. investors the ability to easily purchase shares in foreign firms, and they are typically
much more convenient and cost effective for domestic investors (versus purchasing stocks in
overseas markets). And because many foreign firms are involved in industries and geographical
markets where U.S. multinationals don't have a presence, investors can use ADRs to help diversify
their portfolios on a much more global scale.
A global depository receipt or global depositary receipt (GDR) is a certificate issued by a depository
bank, which purchasesshares of foreign companies and deposits it on the account. GDRs represent
ownership of an underlying number of shares.

Global depository receipts facilitate trade of shares, and are commonly used to invest in companies from
developing or emerging markets.

Prices of global depositary receipt are often close to values of related shares, but they are traded and
settled independently of the underlying share.

Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of
New York. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in
the London Stock Exchange, where they are traded on the International Order Book (IOB). Normally 1
GDR = 10 Shares, but not always. It is a negotiable instrument which is denominated in some freely
convertible currency. It is a negotiable certificate denominated in US dollars which represents a non-US
Company's publicly traded local equity.

Global depositary receipt (GDR). To raise money in more than one market, some corporations
use global depositary receipts (GDRs) to sell their stock on markets in countries other than the one where
they have their headquarters.

The GDRs are issued in the currency of the country where the stock is trading. For example, a Mexican
company might offer GDRs priced in pounds in London and in yen in Tokyo.

Individual investors in the countries where the GDRs are issued buy them to diversify into international
markets. GDRs let you do this without having to deal with currency conversion and other complications of
overseas investing.

However, since GDRs are frequently offered by newer or less-known companies, the prices are often
volatile and the stocks may be thinly traded. That makes buying GDRs riskier than buying domestic
stocks.

What Does Global Depositary Receipt (GDR) Mean?

(1) A bank certificate representing shares in a foreign country and issued in more than one country. The
shares are held by a foreign branch of an international bank. The shares trade as domestic shares but are
offered for sale globally through the various bank branches.

(2) A financial instrument used by private markets to raise capital denominated in either U.S. dollars or
foreign currencies.

Investopedia explains Global Depositary Receipt (GDR)

(1) A GDR is very similar to an American Depositary Receipt.

(2) These instruments are called EDRs when private markets are attempting to obtain euros.
The random walk theory states that market and securities prices are random and not influenced by
past events. The idea is also referred to as the "weak form efficient-market hypothesis."

Princeton economics professor Burton G. Malkiel coined the term in his 1973 book A Random Walk
Down Wall Street.

How It Works/Example:

The central idea behind the random walk theory is that the randomness of stock prices renders
attempts to find price patterns or take advantage of new information futile. In particular, the theory
claims that day-to-day stock prices are independent of each other, meaning that momentum does
not generally exist and calculations of past earnings growth does not predict future growth. Malkiel
states that people often believe events are correlated if the events come in "clusters and streaks,"
even though streaks occur in random data such as coin tosses.

The random walk theory also states that all methods of predicting stock prices are futile in the long
run. Malkiel calls the notion of intrinsic value undependable because it relies on subjective estimates
of future earnings using factors like expected growth rates, expected dividend payouts, estimated
risk, and interest rates.

The random walk theory also considers technical analysis undependable because, according to
Malkiel, chartists buy only after price trends are established and sell only after price trends are
broken; essentially, the chartists buy or sell too late and miss the boat. According to the theory, this
happens because stock prices already reflect the information by the time the analyst moves on the
stock. Malkiel also notes that the widespread use of technical analysis reduces the advantages of
the approach.

Further, Malkiel finds fundamental analysis flawed because analysts often collect bad or useless
information and then poorly or incorrectly interpret that information when predicting stock values.
Factors outside of a company or its industry may affect a stock price, rendering further the
fundamental analysis irrelevant.

There are two forms of the random walk theory. In both forms, the rapid incorporation of information
is disadvantageous for investors and analysts. The semi-strong form states that public information
will not help an investor or analyst select undervalued securities because the market has already
incorporated the information into the stock price. The strong form states that no information, public or
private, will benefit an investor or analyst because even inside information is reflected in the current
stock price.

Malkiel acknowledges some statistical anomalies pointing to some exceptions to the random walk
theory:

1. Prices of small, less liquid stocks seem to have some serial price correlation in the short-term
because they do not incorporate information into their prices as quickly.

2. Contrarian strategies tend to outperform other strategies because reversals are often based on
economic facts rather than investor psychology.
3. There are seasonal trends in the stock market, especially at the beginning of the year and the end
of the week.

4. Stocks with low P/E ratios tend to outperform those with high P/Es, although the tendency is
volatile over time.

5. High-dividend stocks tend to provide higher returns over time because during down markets the
high dividend yields often create demand for these stocks and thus increases the price.

Why It Matters:

The random walk theory proclaims that it is impossible to consistently outperform the market,
particularly in the short-term, because it is impossible to predict stock prices. This may be
controversial, but by far the most controversial aspect of the theory is its claim that analysts and
professional advisors add little or no value to portfolios. As Malkiel put it, "Investment advisory
services, earningspredictions, and complicated chart patterns are useless... Taken to its logical
extreme, it means that a blindfolded monkey throwing darts at a newspaper's financial pages could
select a portfolio that would do just as well as one carefully selected by the experts."

Malkiel and the random walk theory provide considerable support to the intimidated individual
investor, but Malkiel in particular encourages investors to understand the theories and investment
methods that the random walk theory challenges. Malkiel therefore advocates a buy-and-
hold investment strategy as the best way to maximize returns.

Testing the hypothesis

Random walk hypothesis test by increasing or decreasing the value of a fictitious stock based on the odd/even value of the
decimals of pi. The chart resembles a stock chart.

Burton G. Malkiel, an economist professor at Princeton University and writer ofA Random Walk Down
Wall Street, performed a test where his students were given a hypothetical stock that was initially worth
fifty dollars. The closing stock price for each day was determined by a coin flip. If the result was heads,
the price would close a half point higher, but if the result was tails, it would close a half point lower. Thus,
each time, the price had a fifty-fifty chance of closing higher or lower than the previous day. Cycles or
trends were determined from the tests. Malkiel then took the results in a chart and graph form to
a chartist, a person who “seeks to predict future movements by seeking to interpret past patterns on the
assumption that ‘history tends to repeat itself’”. [5] The chartist told Malkiel that they needed to immediately
buy the stock. When Malkiel told him it was based purely on flipping a coin, the chartist was very
unhappy.[citation needed] Malkiel argued that this indicates that the market and stocks could be just as random
as flipping a coin.

The random walk hypothesis was also applied to NBA basketball. Psychologists made a detailed study of
every shot the Philadelphia 76ers made over one and a half seasons of basketball. The psychologists
found no positive correlation between the previous shots and the outcomes of the shots afterwards.
Economists and believers in the random walk hypothesis apply this to the stock market. The actual lack of
correlation of past and present can be easily seen. If a stock goes up one day, no stock market participant
can accurately predict that it will rise again the next. Just as a basketball player with the “hot hand” can
miss the next shot, the stock that seems to be on the rise can fall at any time, making it completely
random.[citation needed]