Foreign investors, private information, and price discovery

We examine the relation between intra-day price discovery and proxies for financial openness and investor accessibility using a sample of intra-day price and quote data of 1,504 stocks from 23 emerging markets. We measure price discovery by weighted price contribution across segments of the trading day. There is a reliable relation between price discovery in early trading and direct foreign ownership, controlling for other factors. We project foreign ownership onto proxies for private information and investor recognition. The residual from the projection regression captures the impact of unknown factors. We find that the role of private information is much more important than investor recognition and unknown factor in facilitating price discovery.