Capital Control, Market Segmentation and Cross-Border Flow of Information: Some Empirical Evidence from the Chinese Stock Market

30 Pages Posted: 20 Sep 2001 Last revised: 28 Dec 2007

See all articles by Yu Gao

Yu Gao

University of St Thomas, Opus College of Business

Yiu Kuen Tse

Singapore Management University - School of Social Sciences

Abstract

This paper investigates the trading activities of two distinct classes of shareholders, namely, the Chinese domestic investors and the foreign investors in the segmented Chinese A-share and B-share markets, respectively. Based on the results of our event study, we document prominent volatility and trading volumes during the windows of earnings announcements. The market reaction is more intensive in the A-share market and takes place much earlier before the public release of information. Furthermore, the abnormal trading volumes without price changes in advance of the public disclosure support the hypothesis of existing information among the A-share investors. This manifests information leakage and suggests an informal information environment in the A-share market. We further classify the earnings announcements into good news and bad news, and find that different information does not bring about different reaction patterns for the A shares. Insider trading, speculation and over-optimistic prospects for the economy in the A-share market are possible explanations.

Keywords: Market segmentation, earnings announcements, Chinese A-share stock market, Chinese B-share stock market

JEL Classification: G12, G14, G15, M41, N25

Suggested Citation

Gao, Yu and Tse, Yiu Kuen, Capital Control, Market Segmentation and Cross-Border Flow of Information: Some Empirical Evidence from the Chinese Stock Market. International Review of Economics & Finance, Vol. 13, No. 4, 2004. Available at SSRN: https://ssrn.com/abstract=283791 or http://dx.doi.org/10.2139/ssrn.283791

Yu Gao

University of St Thomas, Opus College of Business ( email )

1000 Lasalle Ave
Minneapolis, MN 55403
United States

Yiu Kuen Tse (Contact Author)

Singapore Management University - School of Social Sciences ( email )

469 Bukit Timah Road
Federal Building #02-05
Singapore, 259756
Singapore
+65 822-0257 (Phone)
+65 822-8081 (Fax)

HOME PAGE: http://staff.mysmu.edu/yktse/yktsehp.htm

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