The influence of foreign portfolio investment on informational efficiency: Empirical evidence from Central and Eastern European stock markets

This paper presents empirical evidence suggesting that foreign portfolio investment had a positive and significant influence on the informational efficiency of eleven Central and Eastern European stock markets during the period 1999-2010, regardless of the type of dependence - short or long run - taken into account when determining the measure of the degree of informational efficiency. Furthermore, considering the asymmetric effects of the portfolio flows, we have generally found a direct and strong relation between the net positive flows and the degree of informational efficiency. Our panel results also show that market capitalization represents a significant explanatory factor for the presence of short run dependence, while liquidity is associated with the presence of long run dependence. After isolating the common shocks in time, market volatility seems to have an even greater impact on efficiency.