Integration, investor protection rules and global informational inefficiency of emerging financial markets

Relying on dynamic conditional correlations, state space model and variance decomposition techniques, the study explores the delay in global information diffusion into emerging market security prices. It examines the relevance of financial market integration, economic engagement and investor rights protection regimes in describing the cross-section and time-series variability in global informational inefficiency of emerging markets. The study provides evidence of substantial variations overtime of both the degree of integration and information delay estimates. The study shows that financial market integration, economic integration, and investor protection regulations describe the time-lag within which emerging market security prices incorporate global information. The findings suggest that emerging markets should facilitate their global integration process, improve their domestic economic environment and investor protection regimes. These are essential in facilitating timely global information incorporation into emerging market security prices, attracting foreign capital and minimising projects cost of capital.