Do Foreigners Facilitate Information Transmission in Emerging Markets?
York University - Schulich School of Business
University of Texas at Dallas - Naveen Jindal School of Management
Schulich School of Business, York University
Tony S. Wirjanto
University of Waterloo, School of Accounting & Finance and Department of Statistics & Actuarial Science
July 14, 2011
Journal of Financial Economics. Forthcoming
Using the degree of accessibility of foreign investors to emerging stock markets, or investibility, as a proxy for the extent of foreign investments, we assess whether investibility has a significant influence on the diffusion of global market information across stocks in emerging markets. We show that greater investibility reduces price delay to global market information where the price delay is measured as the proportion of stock returns explained by the lagged world market returns in the regression of stock returns on contemporaneous and lagged world and local market returns. We also find that returns of highly investible stocks lead those of non-investible stocks because they incorporate global information more quickly. These results are consistent with the idea that financial liberalization in the form of greater investibility yields informationally more efficient stock prices in emerging markets.
Number of Pages in PDF File: 47
Keywords: lead-lag cross-autocorrelations, information diffusion, price delay, foreign investment, emerging markets
JEL Classification: G12, G14, G15working papers series
Date posted: February 27, 2007 ; Last revised: March 14, 2012
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