Cross-autocorrelation between a shares and b shares in the chinese stock market

Chun Wai Andy Chui, Chuck C.Y. Kwok

Research output: Journal article publicationJournal articleAcademic researchpeer-review

102 Citations (Scopus)

Abstract

Listed companies in China, upon meeting certain requirements, can issue two types of shares: A shares and B shares. Local investors in China can only buy and sell A shares, while foreign investors can only buy and sell B shares. We argue that foreign investors may receive news about China faster than domestic Chinese investors because of information barriers in China. Since foreigners participate in the B-share market, the price movements of B shares should reflect the common information that the foreigners have. Rational A-share investors can therefore condition their trading decisions on the previous price movements of B shares. As a result, returns on B shares should lead the returns on A shares. Using daily prices of A and B shares, we demonstrate that returns of B shares are correlated with those of A shares and that this correlation depends on the information transmission mechanism at work. The pattern of the asymmetric cross-autocorrelation is robust to the inclusion of lagged realized returns and trading volumes.
Original languageEnglish
Pages (from-to)333-353
Number of pages21
JournalJournal of Financial Research
Volume21
Issue number3
DOIs
Publication statusPublished - 1 Jan 1998

ASJC Scopus subject areas

  • Accounting
  • Finance

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