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Artificial intelligence, information environment, and capital market efficiency

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  • Saif-Alyousfi, Abdulazeez Y.H.

Abstract

This study investigates the impact of Artificial Intelligence (AI) and the information environment on capital market efficiency, using stock price synchronicity as a proxy. Analyzing data from Indian listed firms from 2018 to 2023, we find that AI significantly enhances market efficiency by increasing the uniformity of stock price movements in response to new information. The information environment, characterized by analyst attention, Big4 audits, and investor attention, shows mixed effects. Analyst coverage and Big4 audits reduce synchronization by disseminating firm-specific information and enhancing transparency, respectively. In contrast, investor attention increases synchronization by aligning stock prices with market movements. Furthermore, the interaction between AI and the information environment variables reveals that AI amplifies the effects of high analyst coverage, rigorous audits, and strong investor attention, leading to greater market synchronization. Robustness checks, replacing the dependent variable, endogeneity tests, and analyses based on different property rights, confirm these findings. Notably, state-owned enterprises benefit more from AI and information environment factors compared to non-state-owned enterprises. This study highlights the crucial role of AI and a transparent information environment in enhancing capital market efficiency and provides significant policy implications for regulators, financial institutions, and market participants to foster AI adoption, improve information transparency, and tailor regulations to different ownership structures.

Suggested Citation

  • Saif-Alyousfi, Abdulazeez Y.H., 2025. "Artificial intelligence, information environment, and capital market efficiency," Research in International Business and Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003502
    DOI: 10.1016/j.ribaf.2025.103094
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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