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Do foreigners facilitate information transmission in emerging markets?

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  • Bae, Kee-Hong
  • Ozoguz, Arzu
  • Tan, Hongping
  • Wirjanto, Tony S.

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. We also find that returns of highly investible stocks lead those of noninvestible 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.

Suggested Citation

  • Bae, Kee-Hong & Ozoguz, Arzu & Tan, Hongping & Wirjanto, Tony S., 2012. "Do foreigners facilitate information transmission in emerging markets?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 209-227.
  • Handle: RePEc:eee:jfinec:v:105:y:2012:i:1:p:209-227 DOI: 10.1016/j.jfineco.2012.01.001
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    More about this item

    Keywords

    Foreign investors; Information diffusion; Investibility; Price delay; Emerging stock markets; Financial liberalization;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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