  The paper examines the Chinese market reaction to the ADR issue by comparing
returns and their stochastic variances of the Chinese firms cross-listed in the
U.S. stock market. First, It was implemented capital asset pricing model (CAPM)
to determine expected returns A and N shares. The CAPM provided with a
methodology to quantify risk and translate that risk into estimates of expected
return on equity. Overall findings document that N shares of Chinese entities
listed on U.S. market were greatly affected by economic turmoil during the
period of World Financial Crises 2007-2008 than the A shares listed on the
local market. After in order to test the hypothesis of beneficial
cross-listing, it was implemented an event study method and the returns was
modeled following GARCH process, which assumes homoscedasticity in residual
returns. The results indicate a significant negative abnormal market return on
an ADR listing date. The return volatilities after the listing date are
compared to those before the listing. Four out of ten companies experienced
increased volatility of local return after the cross-listing. Keywords:
cross-listing, ADR, rate of return, volatility, CAPM, GARCH model, N shares, A
shares
