Effects of time dependency and efficiency on information flow in financial markets

TL;DR

This study analyzes how time dependency and market efficiency influence information flow between stocks across multiple international markets, revealing that information flow is time-dependent and affected by efficiency differences.

Contribution

It provides empirical evidence that time dependency and efficiency differences significantly impact information flow in financial markets, highlighting their roles in market dynamics.

Findings

Information flow decreases with longer time intervals.

No significant information flow when temporal correlation is removed.

Efficiency differences influence the direction of information flow.

Abstract

We investigated financial market data to determine which factors affect information flow between stocks. Two factors, the time dependency and the degree of efficiency, were considered in the analysis of Korean, the Japanese, the Taiwanese, the Canadian, and US market data. We found that the frequency of the significant information decreases as the time interval increases. However, no significant information flow was observed in the time series from which the temporal time correlation was removed. These results indicated that the information flow between stocks evidences time-dependency properties. Furthermore, we discovered that the difference in the degree of efficiency performs a crucial function in determining the direction of the significant information flow.