Capital gains taxes, pricing spreads and arbitrage : evidence from cross-listed firms in the US

This paper examines how personal taxes affect the pricing of stocks that are simultaneously listed and traded on multiple exchanges around the globe and what role cross-country arbitrage plays in the dissipation of any such effect. Specifically, we study how an unexpected reduction in U.S. capital gains taxes at the announcement of the 1997 budget accord affects the pricing of foreign firms’ American Depository Receipts and other types of cross-listed shares (ADRsʺ) in the U.S. relative to their underlying home country stocks