Property Rights Protection, Information Acquisition, and Asset Prices: Theory and Evidence

Abstract:     
We study return comovement and relative pricing of two classes of shares with identical voting rights and cash-flow rights but for different investor clienteles: A-shares for domestic investors and B-shares for foreign investors. We first document a surprisingly low return comovement between A- and B-shares of the same firm, which is even lower than the average B-shares comovement with B-shares issued by different firms. Local investor property rights protection of the city where the firm is incorporated, and several firm opaqueness measures, explain the cross-sectional variations of the low comovement. In addition, local investor property rights protection and firm opaqueness also explain the relative pricing of A-B shares.

Number of Pages in PDF File: 56

Keywords: Comovement, property rights protection, information acquisition

JEL Classification: G14, G12, G30

working papers series