“Price Discovery and Foreign Ownership in Emerging Markets” by Jun CAI
Economics Seminar
Authors:
Jun CAI
City University of Hong KongZheng Zhang
Pe-king UniversityRichard Y. K. Ho
City University of Hong KongRobert Korajczyk
Northwestern University
This paper examines the relation between intraday price discovery and proxies for financial openness or investor accessibility for a large cross-section of 23 emerging markets. Our sample covers 1,504 stocks over a period of eight months, from 2006 to 2007. We find price discovery, as measured by weighted price contribution, to be most important in early trading sessions immediately after the market opens. Our cross-sectional analysis suggests that price discovery in early trading is negatively related to the level of the bid-ask spread and return volatility, and positively related to the extent of analyst coverage. Most importantly, there is a reliable relation between early price discovery and direct foreign ownership in the underlying stocks. Greater price discovery early in the day is affiliated with a more significant presence of foreign investors in the home markets.
