47 Pages Posted: 27 Feb 2007 Last revised: 14 Mar 2012
Date Written: July 14, 2011
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: 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