Price Discovery and Information in an Emerging Market: Evidence from China

43 Pages Posted: 19 Jan 2009 Last revised: 15 Jul 2010

See all articles by Jingyun Ma

Jingyun Ma

Tsinghua University - School of Economics & Management

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Fengming Song

Tsinghua University - School of Economics & Management

Date Written: July 15, 2010

Abstract

In a developing stock market such as China, where do informed traders locate‘ Does information originate with traders able to access companies, officials and insiders or are foreigners better informed‘ We examine the price discovery process for Chinese stocks simultaneously traded in Mainland China and the Hong Kong market. The mainland contributes most to price discovery, according to Hasbrouck’s (1995) IS method and the Gonzalo and Granger (1995) PT method. We find a significantly positive relationship between the mainland’s share of price discovery and the relative adverse selection component of the effective spread. Consequently, the informational advantage of domestic investors would appear to be the reason that the mainland dominates price discovery.

Keywords: Price discovery, Cross-listing, Cointegration, Chinese securities

JEL Classification: D82, G14, G28, G32, O16

Suggested Citation

Ma, Jingyun and Swan, Peter Lawrence and Song, Fengming, Price Discovery and Information in an Emerging Market: Evidence from China (July 15, 2010). Available at SSRN: https://ssrn.com/abstract=1328750 or http://dx.doi.org/10.2139/ssrn.1328750

Jingyun Ma (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Peter Lawrence Swan

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Fengming Song

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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