When an Event is Not an Event: The Curious Case of an Emerging Market
Journal of Financial Economics, January 2000
Posted: 27 Jan 1999
Shares trading in the Bolsa Mexicana de Valores do not seem to react to company news. Using a sample of Mexican corporate news announcements from the period July 1994 to June 1997, this paper finds that there is nothing unusual about returns, volatility of returns, volume of trade or bid-ask spreads in the event window. This suggests one of five possibilities: our sample size is small; or markets are inefficient; or markets are efficient but the corporate news announcements are not value-relevant; or markets are efficient and corporate news announcements are value-relevant, but they have been fully anticipated; or markets are efficient and corporate news announcements are value-relevant, but unrestricted insider trading has caused prices to fully incorporate the information. A classification into A-shares (which only citizens may hold) and B-shares (which foreigners can hold) reveals that this lack of reaction is mostly concentrated in the A-shares, suggesting that foreigners are more surprised than the locals. This, and the result that the return volatility of A-shares leads return volatility of B-shares (but not strongly enough for there to exist trading rules to arbitrage it away), insinuate that it is insider trading that is responsible for a Mexican corporate news announcement to be a non-event.
The paper thus points toward a methodology for ranking emerging stock markets in terms of their "market integrity," an approach that can be used with the limited data available in such markets.
Note: This is a description of the paper and is not the actual abstract.
JEL Classification: G14, G15
Suggested Citation: Suggested Citation