Title

Do Foreigners Facilitate Information Transmission in Emerging Markets?

Publication Date

2-27-2007

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.

Document Type

Article

Keywords

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

Disciplines

Finance

DOI

10.2139/ssrn.965918

Source

SMU Cox: Finance (Topic)

Language

English

Share

COinS