International Information Flow and Market Quality

Journal of Banking and Finance, Forthcoming

59 Pages Posted: 25 Feb 2025 Last revised: 25 Feb 2025

See all articles by Jiang Zhang

Jiang Zhang

University of St. Thomas - Opus College of Business

Date Written: January 18, 2025

Abstract

Does the informational interdependence among countries affect market quality? Guided by the theoretical literature, this paper examines disruptions to international information flow as a source of financial market frictions. Using nonoverlapping holidays as a novel identification method, I find that disruptions to foreign information inflow deteriorate domestic market liquidity and fairness. I show that market quality worsens through both the informational sensitivity and the abnormal trading channels. Additional analyses indicate that stocks with lower liquidity and higher volatility are prone to more manipulative trading during information disruptions. Furthermore, a stock exchange upgrade weakens the abnormal trading channel. These findings suggest that international information flow is important to financial market quality.

Keywords: International information flow, Fairness, Liquidity, Market manipulation, Information asymmetry

JEL Classification: F65, G14, G15

Suggested Citation

Zhang, Jiang, International Information Flow and Market Quality (January 18, 2025). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=5148781 or http://dx.doi.org/10.2139/ssrn.5148781

Jiang Zhang (Contact Author)

University of St. Thomas - Opus College of Business

2115 Summit Ave.
St. Paul, MN 55015
United States

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