Price Discovery, Foreign Ownership, and Rule of Law

We examine the relation between intraday price discovery and proxies for financial openness or investor accessibility for 23 emerging markets. Our sample covers 1,504 stocks over a period of eight months. We measure price discovery by weighted price contribution across 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. Also, we study the relation between the quality of countries’ legal environments and 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 the legal environment and efficiency of financial markets.