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Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount

54 Pages Posted: 3 Aug 2003 Last revised: 26 Jun 2008

Kalok Chan

CUHK Business School

Albert J. Menkveld

VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Zhishu Yang

Tsinghua University - School of Economics & Management

Abstract

We examine the effect of information asymmetry on equity prices in the local A- and foreign B-share market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44% and 46% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables.

Suggested Citation

Chan, Kalok and Menkveld, Albert J. and Yang, Zhishu, Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount. Journal of Finance, Vol. 63, 2008. Available at SSRN: https://ssrn.com/abstract=424460 or http://dx.doi.org/10.2139/ssrn.424460

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Albert J. Menkveld (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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