Informed Short Selling in Cross-Listed Stocks
25 Pages Posted: 15 Jan 2019
Date Written: January 12, 2019
We examine if differences in short selling volumes and the information impounded by short sells can contribute to explaining pricing differences which exist between the A- and H-share markets in China. In particular, we argue and also find that informed short selling around earnings announcements occurs primarily on the H-share market, which then leads to differences in the post-announcement drift of cross-listed stocks in the A- and H-share markets. In addition, we also show these informed trades are, at least partly, driven by private signals that are likely to relate to firms which are more opaque and further away from a major financial exchange. Our findings have direct implications for explaining the A- and H-share pricing discrepancy by showing a potential channel through which negative news is asymmetrically impounded into H-share prices.
Keywords: Short selling, earnings announcements, cross-listing, A-shares and H-shares, informed trading
JEL Classification: G11, G14, G15, G34
Suggested Citation: Suggested Citation