The information environment in China's stock market: new evidence from a volatility persistence perspective

Abstract

We investigate the information environment in the Chinese stock market from the perspective of persistence in the volatility of stock returns, paying attention to how the institutional setting differs from that in typical 'western' markets. We first demonstrate that the volatility of Chinese stock returns is more pervasive and persists for longer than is typical in developed markets. We then provide empirical evidence that high volatility persistence is likely, in part, to reflect the opacity of the information environment and go on to explain how information asymmetries are likely to arise from agency conflicts. Finally, we infer that promising ways to improve the information environment and mitigate the persistence of China's stock market volatility include continuing reforms of state-ownership and control; growth in the number and coverage of analyst reports; and in the proportion of shares held by active institutional investors.

Keywords: information environment; volatility persistence; ownership structure; analyst coverage; institutional ownership

JEL Classification: G14, G28, G30, G34