When an Event is Not an Event: The Curious Case of an Emerging Market

What is it about?

Shares trading in the Bolsa Mexicana de Valores do not seem to react to company news. Using a sample of Mexican corporate news announcements from the period July 1994 through June 1997, this paper finds that there is nothing unusual about returns, volatility of returns, trading volume, or bid-ask spreads in the event window. We provide evidence that suggests that unrestricted insider trading causes prices to fully incorporate the information before its public release. The paper thus points toward a methodology for ranking emerging stock markets in terms of their market integrity, an approach that can be used with the limited data available in such markets.

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Why is it important?

This paper develops a methodology for ranking emerging stock markets in terms of amount of insider trading in the market: if there is no jump in prices on the day of a corporate news announcement, insider trading is rampant. Regulators now routinely use my measure. The paper was featured in Barron's August 2, 1999.

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