Quasi-Arbitrage in ADR–Indian Equity Pairs: Impact of Earnings Announcements and U.S. Macroeconomic Events on Price Dynamics

Focusing on Infosys and HDFC Bank, this study investigates the degree of event-driven quasi-arbitrage between American Depositary Receipts (ADRs) and their corresponding Indian equities between 2022 and 2025. Theoretically, after taking conversion ratios and exchange rates into consideration, the law of one price guarantees parity between ADRs and underlying domestic shares. However, in reality, market frictions like capital controls, time zone differences, and information asymmetry lead to transient mispricings. This study examines abnormal returns (ARs), cumulative abnormal returns (CARs), and arbitrage spreads in relation to firm-specific earnings announcements and significant U.S. macroeconomic releases using an event study methodology. Event dates were sourced from official economic calendars and company filings, and daily price data for ADRs, domestic stocks, and USD/INR exchange rates were gathered from investing.com. The analysis covered macroeconomic announcements over a [0, +1] window and earnings events over a [−3, +3] trading day window. The results show unique dynamics at the firm level: Infosys shows a sharp reversal with nearly zero CARs after displaying strong and statistically significant abnormal returns (+2.42% on event day). With a modest negative CAR and negligible abnormal returns, HDFC's earnings announcements appear to have weak or predictable earnings effects. Additionally, there are structural differences in arbitrage spreads: HDFC ADRs exhibit a persistent premium, reflecting segmentation and diverse investor demand, while Infosys ADRs trade nearly at parity with NSE shares. ADR–equity pairs are only slightly and unevenly impacted by macroeconomic events, such as CPI, non-farm payroll releases, and U.S. Federal Reserve announcements, with mean CARs near zero. These findings imply that, although transaction costs and regulatory restrictions limit their exploitability, quasi-arbitrage opportunities are most apparent during firm-level events. The study's overall findings demonstrate the changing effectiveness of Indian ADRs, which have limited long-term arbitrage potential but temporary mispricings around high-information events.