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Foreign investors, private information, and price discovery

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  • Cai, Jun
  • Ho, Richard Y.K.
  • Zhang, Zheng

Abstract

We examine the relation between intra-day price discovery and proxies for financial openness and investor accessibility using a sample of intra-day price and quote data of 1,504 stocks from 23 emerging markets. We measure price discovery by weighted price contribution across segments of the trading day. There is a reliable relation between price discovery in early trading and direct foreign ownership, controlling for other factors. We project foreign ownership onto proxies for private information and investor recognition. The residual from the projection regression captures the impact of unknown factors. We find that the role of private information is much more important than investor recognition and unknown factor in facilitating price discovery.

Suggested Citation

  • Cai, Jun & Ho, Richard Y.K. & Zhang, Zheng, 2022. "Foreign investors, private information, and price discovery," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 506-525.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:506-525
    DOI: 10.1016/j.iref.2022.03.002
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    More about this item

    Keywords

    Emerging markets; Price discovery; Weighted price contribution; Foreign ownership; Market integration; Market microstructure;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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