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Price Discovery, Foreign Ownership, and Rule of Law


This paper aims to explore two issues. First, we examine 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. We measure price discovery by weighted price contribution across segments of the trading day. We find that there is a reliable relation between early price discovery and direct foreign ownership in the underlying stocks after controlling for other factors. Second, we extend the literature on law and finance to studies of market microstructure. We study the relation between the quality of countries' legal environments to the speediness of price discovery. We find that a rule of law measure is significantly related to the speed of price discovery. Our finding establishes a positive link between the quality of legal environment and efficiency of financial markets, where the latter is important for the ultimate goal of economic development.


Working Paper


Jun Cai, Richard Y.K. Ho, Robert Korajczyk, Zheng Zhang

Date Published



Cai, Jun, Richard Y.K. Ho, Robert Korajczyk, and Zheng Zhang. 2013. Price Discovery, Foreign Ownership, and Rule of Law.


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