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Liquidity-Corrected Variance Ratios and the Effect of Foreign Equity Ownership on Information in an Emerging Market

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  • Coppejans, Mark
  • Domowitz, Ian

Abstract

We ask whether foreign equity ownership affects the stability of information signals that are absorbed into prices in an emerging economy. We address both the effect of ownership restrictions exogenously imposed on stock ownership and the impact of introducing or widening foreign ownership through cross-listing. A methodology for variance ratio analysis is introduced that isolates information effects, correcting for liquidity and volume differences across stock series experiencing different degrees of foreign ownership. We find that foreign ownership does not affect the volatility of information in the absence of cross-listing. Foreign ownership introduced or accompanied by cross-listing of a stock series raises the variance of returns. This effect is found to operate in part through increases in volume traded on the domestic market following the listing, but also includes an independently identifiable increase in the volatility of information.

Suggested Citation

  • Coppejans, Mark & Domowitz, Ian, 1997. "Liquidity-Corrected Variance Ratios and the Effect of Foreign Equity Ownership on Information in an Emerging Market," Working Papers 97-08, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:97-08
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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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