International Information Flow and Market Quality
Journal of Banking and Finance, Forthcoming
59 Pages Posted: 25 Feb 2025 Last revised: 25 Feb 2025
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: Suggested Citation