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 language | English |
---|---|
Pages (from-to) | 333-353 |
Number of pages | 21 |
Journal | Journal of Financial Research |
Volume | 21 |
Issue number | 3 |
DOIs | |
Publication status | Published - 1 Jan 1998 |
ASJC Scopus subject areas
- Accounting
- Finance