Do Foreigners Facilitate Information Transmission in Emerging Markets?

47 Pages Posted: 27 Feb 2007 Last revised: 14 Mar 2012

Kee-Hong Bae

York University - Schulich School of Business

Arzu Ozoguz

Rice University

Hongping Tan

York University - Schulich School of Business

Tony S. Wirjanto

Department of Statistics & Actuarial Science and School of Accounting & Finance, University of Waterloo,

Date Written: July 14, 2011

Abstract

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.

Keywords: lead-lag cross-autocorrelations, information diffusion, price delay, foreign investment, emerging markets

JEL Classification: G12, G14, G15

Suggested Citation

Bae, Kee-Hong and Ozoguz, Arzu and Tan, Hongping and Wirjanto, Tony S., Do Foreigners Facilitate Information Transmission in Emerging Markets? (July 14, 2011). Journal of Financial Economics. Forthcoming. Available at SSRN: https://ssrn.com/abstract=965918 or http://dx.doi.org/10.2139/ssrn.965918

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Arzu Ozoguz

Rice University ( email )

6100 Main St
Houston, TX Texas 77005
United States
9193455747 (Phone)

Hongping Tan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Tony S. Wirjanto

Department of Statistics & Actuarial Science and School of Accounting & Finance, University of Waterloo, ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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