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