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

Mark Coppejans and Ian Domowitz

No 97-08, Working Papers from Duke University, Department of Economics

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.

JEL-codes: C52 F36 G14 O16 (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:97-08

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