Market Microstructure in Emerging and Developed Markets

CHAPTER 24

Intraday Price Behavior during Information Arrival in Emerging Markets

JAN HANOUSEK

Professor of Statistics, Charles University, Prague

EVŽEN KOČENDA

Professor of Economics, Charles University, Prague

JAN NOVOTNÝ

Postdoctoral Research Fellow, City University London

INTRODUCTION

This chapter provides an analysis of the effects of news and market shocks on price formation on emerging European Union (EU) stock markets. These markets are small relative to the mature markets in the EU (Égert and Kočenda 2007) and are under the substantial influence of both EU and U.S. markets (Hanousek, Kočenda, and Kutan 2009). The findings show that foreign news originating in developed markets (i.e., EU and the United States) dominates any effect of local news or external shocks. Also, price jumps originating in mature EU or U.S. markets mostly explain large local price changes in the Central and Eastern European (CEE) emerging markets.

Recent developments in information technologies allow markets to operate at ever-increasing speed that allows more efficient information processing. Thus, modern research relies on using intraday data and allows researchers to study the impact of macroeconomic news announcements, as well as company-specific news on assets including equities, commodities, bonds, and financial derivatives (Bollerslev and Cai 2000; Erenburg, Kurov, and Lasser 2005; Jones, Lin, and Masih 2005; Nikkinen, Omran, Sahlström, and Äijö 2006; Rigobon and Sack 2008).

The impact of ...