Erasmus university rotterdam

Market Transparency

All markets differ in their degrees of transparency, but emerging markets are less likely to be transparent than developed markets. The degree of transparency is of great influence of the analysts and investors ability to collect information to develop expectations to facilitate investment decision making. Emerging stock markets are highly concentrated and activity often concentrates around a few stocks, which makes the markets prone to price manipulation by investors (Pereiro, 2001). Concentration makes investing difficult, and makes the market less efficient as a whole (Pereiro, 2001). It is also important to look at the accuracy of the information that is available. Disclosure requirements in emerging markets are often less strict. Consequently, the accounting information is less comprehensive and less detailed. There are several more factors that can influence data reliability in emerging markets according to Pereiro (2001); inflation, exchange risk, the chance of expropriation, unstable governments, changing laws, weak central banks which allow for currency manipulations, restrictions to capital inflows or outflows, corruption in both the private and public sectors. Information asymmetry is also more prevalent in emerging markets, since not all information is equally available for all investors.