Hynix Hijinks

SK Hynix, a trillion-dollar AI firm on the Korean stock market, issued ADRs on Nasdaq on July 10, 2026.[1] The blockbuster offering, the largest foreign equity sale in U.S. history, was 7x oversubscribed; on the first day of trading on Nasdaq, the ADR price rose 13%. In the days that followed, the ADR price diverged from the underlying Korean share price, with the ADRs reaching a 49% premium on July 14, according to Bloomberg. One company, two different prices.

This mispricing is absolutely crazy. I don’t know whether the ADR price of SK Hynix is too high or the Korean price of SK Hynix is too low, but I do know that in a well-functioning market, these two prices should be the same. I’ve previously discussed the case of TSMC, where in October 2024 the ADR premium was 20%; the SK Hynix premium is more than twice as large.

Let’s consider two questions. First, why are we observing an ADR premium? Second, why did SK Hynix decide to offer ADRs in the first place?

Why is there an ADR premium?

The ADR premium of SK Hynix is a violation of the Law of One Price (LOOP), and we often see LOOP violations during stock market bubbles. Lamont and Thaler (2003) discuss many examples, including the Indian software firm Infosys which in March 2000 had an ADR premium of 136%.

The 49% premium is surprising for several reasons. First, U.S. investors (including retail investors with accounts at Interactive Brokers) are able to buy the Korean shares of SK Hynix. Second, other Korean ADRs in the U.S. (for example, KB Financial and Shinhan Financial) currently have premiums around zero. Third, SK Hynix already has a GDR trading in Frankfurt, and its premium is also currently around zero.

When you see a LOOP violation, you always want to ask two questions. First, what are the limits to arbitrage that prevent the correction of mispricing? Second, who is buying the overpriced shares?

Let’s consider limits to arbitrage. If the ADRs are 49% more expensive, why can’t an investor (a) buy Korean shares, (b) convert them into ADRs, and (c) sell the ADRs, making a quick 49% profit? The main issue is that step (b) requires regulatory approval; it is currently not possible for market participants to mechanically convert Korean shares into ADRs. Some observers claim that conversion will soon become possible and therefore the mispricing is only temporary.[2]

Putting aside the issue of conversion, why don’t arbitrageurs short the ADRs, go long the Korean shares, and then profit as the premium goes to zero? Shorting SK Hynix ADRs does not appear to be difficult or costly. The problem with this strategy is illustrated by the previously mentioned Infosys example. The ADR premium for Infosys eventually rose to 136%, and there’s nothing stopping that from happening for SK Hynix as well. An arbitrageur who initiates a position when the premium is 49% might get wiped out if the premium rises to 136%.

Price volatility is a substantial impediment to arbitrage, and it is certainly present for SK Hynix. The underlying Korean shares are extremely volatile (with annualized volatility north of 100%), and I’ve previously described the outsized impact of this one company on the global stock market. Its volatility may reflect leveraged single-stock ETFs trading both in Hong Kong and more recently in Korea itself. Reportedly, on some days the majority of trading volume in SK Hynix shares in Korea is driven by a single leveraged ETF.[3]

In the handful of trading days since the ADR listing, the Korean shares have continued to have volatility over 100%. That’s high. But not as high as the ADRs, which have had volatility over 200%. I’ve previously complained that the U.S. stock market is Koreafying—becoming dominated by risk-loving retail investors—but I never imagined that the U.S. could beat Korea in the volatility Olympics.

Who’s buying the overpriced ADRs? There are undoubtedly some U.S. retail buyers who are simply unaware that cheaper Korean shares are available, either because they’re unaware that the ADR premium is non-zero or they’re unaware that Korean shares even exist. For example, the New York Times article describing the ADR offering (“Korean Chip Maker’s Stock Rises After Huge I.P.O., Latest Sign of A.I. Demand”) does not contain the word “ADR” or mention the existence of the Korean shares.[4]

Some U.S. institutional investors are allowed to hold U.S.-listed shares but not Korean shares, and some indices can include ADRs but not Korean shares. For example, since the SK Hynix ADRs are listed on Nasdaq, they are eligible for inclusion in the Nasdaq-100 Index.

While a 49% premium seems a little steep, I can at least understand the logic of a non-Korean investor buying the ADRs. What I cannot understand is a Korean investor buying the ADRs. According to data from the Korea Securities Depository, Korean retail investors purchased $0.5B worth of SK Hynix ADRs through July 17.

It makes no sense. These investors reside in Korea and could easily buy SK Hynix shares on the Korean stock market. Instead, they’re buying ADRs in America, where they’re paying $149 for $100 worth of SK Hynix. These nonsensical purchases are consistent with a pattern of baffling and self-destructive behavior, including obvious mistakes, by Korean retail investors.

Why did SK Hynix list ADRs?

The ADR offering raised approximately $27B for SK Hynix, although SK Hynix itself did not benefit from the huge ADR premium that subsequently arose (because the initial offering price on July 10 was only slightly higher than the prevailing price in Korea). Why did SK Hynix decide to list in the U.S.? Why not just issue more shares on the Korean market? After all, the Korean share price rose more than 6x in the past year, so we’re pretty sure there are many enthusiastic buyers in Korea.

If a firm issues in market A instead of market B, we can infer that the firm believes that demand for shares is higher in market A than market B. And the Korean stock market seems to agree; on the day that SK Hynix announced it was planning an ADR listing, its Korean stock price rose 12%.[5] As Henderson, Jegadeesh, and Weisbach (2006) argue:

… firms would still be attracted to markets that as a whole are seen as relatively overvalued or ‘‘hot’’ … firms are likely to be able to issue seasoned equity without suffering a significant price decline.

Historically, when the U.S. stock market has gotten overvalued, non-U.S. firms have rushed to issue in the U.S., using ADRs or other methods. Henderson, Jegadeesh, and Weisbach (2006) examine data from 1991 to 2001 and conclude that when there’s an unusually high level of non-U.S. issuance in the U.S., we’d expect lower future U.S. stock returns. Similarly, Li et al. (2019) conclude that “market timing is an important motivation for foreign firms to list in the U.S. equity markets.” We saw increases in ADR listings around the tech bubble of 1999/2000 and the COVID bubble of 2021/2022.

We’ve seen some reports that Korea’s Samsung Electronics and Japan’s Kioxia are considering U.S. ADRs. If in the coming months we see many foreign firms issuing in the U.S., that would be a bubble indicator. However, so far we have not seen a wave of new ADRs. So far, SK Hynix’s ADR looks similar to SpaceX’s IPO: a very large share issue that has yet to be followed by a wave of other issuers.

What comes next?

Will the SK Hynix ADR premium quickly go to zero, or will it persist for decades? I have no idea. LOOP violations can be ephemeral or long-lasting. For Chinese A-shares versus H-shares, large LOOP violations can persist for years. The TSMC ADR premium has fluctuated over time, reaching almost 90% in 2000 but falling to low single digits for most of the subsequent two decades. In the past year, TSMC’s ADR premium has fallen from around 25% to around 15%.

One economic mechanism that enforces LOOP is issuance by firms. When LOOP is violated, the firm should issue more of the expensive shares and/or repurchase the cheap shares. That’s what TSMC did in June 2000, issuing more ADRs at a time when its ADR premium was around 40%. I’d advise SK Hynix to issue more ADRs ASAP, perhaps using the proceeds to repurchase its Korean shares.

Most of the time, most ADRs do not violate LOOP, even in situations when arbitrage is difficult. The fact that we observe extreme LOOP violations today is a sign that valuations are getting crazy out there. Let me conclude with these inspiring words from Lamont and Thaler (2003): “If the market is flunking these no-brainers, what else is it getting wrong?”

Endnotes

[1] References to this and other companies should not be interpreted as recommendations to buy or sell specific securities. Acadian and/or the author of this post may hold positions in one or more securities associated with these companies.

[2] “Why the huge premium on SK Hynix’s U.S.-listed shares may prove short-lived,” MarketWatch, July 15, 2026.

[3] “One Leveraged ETF Is Reshaping Trading in World’s Top AI Memory Stock,” Bloomberg, July 1, 2026.

[4] “Korean Chip Maker’s Stock Rises After Huge I.P.O., Latest Sign of A.I. Demand,” The New York Times, July 10, 2026.

[5] “SK Hynix surges 12% after Micron earnings; blockbuster Nasdaq listing,” CNBC, June 24, 2026.

References

Henderson, Brian J., Narasimhan Jegadeesh, and Michael S. Weisbach. "World markets for raising new capital." Journal of Financial Economics 82, no. 1 (2006): 63-101.

Lamont, Owen A., and Richard H. Thaler. "Anomalies: The law of one price in financial markets." Journal of Economic Perspectives 17, no. 4 (2003): 191-202.

Li, Shi, Tianze Li, Usha Mittoo, Xiaoping Song, and Steven Xiaofan Zheng. "ADR valuation and listing of foreign firms in US Equity markets." Journal of International Financial Markets, Institutions and Money 58 (2019): 284-298.