Market risk assessment of American Depositary Receipts (ADRs) portfolios and Brazilian stocks: an analysis from Top Components of Titans BR 20

Abstract

In this article we analyzed the market risk using Value at Risk (VaR) and Expected Shortfall (ES) for ten companies considered Top Components of the Dow Jones Brazil Titans ADR Index (BR Titans 20) that has dual listing of American Depositary Receitps (ADRs) traded on the NYSE and stocks on the BM&F Bovespa. The aim was to apply four strategies for portfolios construction designed from the portfolios’ theory of Markowitz (1952) by applying the weights of ADRs and stocks in a portfolio in the local market or the U.S. stock market and estimate the probability distribution for these portfolios in order to compare the highest value at risk and also the highest expected loss when losses exceed the VaR. These strategies can be implemented by an american or a brazilian investor or an investment fund applying the weights of ADRs or stocks in the market in which it operates. The results showed that using the weights defined in ADRs with the returns of the ADRs themselves and with the stocks returns (strategy I and III), in general , the worst losses were obtained in relation to VaR and also in relation to loss expected.