American Depositary Receipts (ADRs)

American Depositary Receipts (ADRs) are certificates traded in the United States and denominated in U.S. dollars. ADRs are sold, registered, and transferred in the United States in the same manner as any share of stock, with each ADR representing some multiple of the underlying foreign share. This multiple allows the ADRs to process a price per share conventional for the U.S. market (typically between $20 and $50 per share) even if the price of the foreign share is unconventional when converted to U.S. dollars directly.

ADRs can be exchanged for the underlying foreign shares, or vice versa, so arbitrage keeps foreign and U.S. prices of any given share the same after adjusting for transfer costs. For example, investor demand in one market will cause a price rise there, which will cause an arbitrage rise in the other market, even when investors there are not as bullish on the stock.