Asymmetric information flow between market index and individual stocks in several stock markets

Abstract

In this study, we observed asymmetric information flow between the stock market index and their component stocks using a transfer entropy measure. We found that the amount of information flow from an index to a stock is larger than from a stock to an index. This finding indicates that the market index is a major driving force in determining individual stocks. Interestingly, this asymmetry occurred in the same direction in every market studied from mature to emerging markets. However, the strength of the asymmetry was higher in mature markets than in emerging markets.