The Informativeness of Domestic and Foreign Investors' Stock Trades: Evidence from the Perfectly Segmented Chinese Market

Journal of Financial Markets, Vol. 10, No. 4, 2007

36 Pages Posted: 6 Aug 2003 Last revised: 14 Jun 2008

See all articles by Kalok Chan

Kalok Chan

CUHK Business School

Albert J. Menkveld

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

Zhishu Yang

Tsinghua University - School of Economics & Management

Abstract

This paper uses the perfect market segmentation setting in China's stock market to compare the information content of the stock trades of domestic and foreign investors. We study 76 firms that issue both A-shares (for domestic investors) and B-shares (for foreign investors) and compare the price discovery role of the two segmented markets in China. Before Feb 19, 2001, the A-share market led the B-share market in price discovery, as the signed volume and quote revision of the A-share market had strong predictive ability for B-share quote returns, but not vice versa. After Feb 19, 2001, because some domestic investors were allowed to invest in the B-share market, we find evidence for a reverse causality from the B-share to the A-share market. Nevertheless, the Hasbrouck (1995) information share analysis reveals that A-shares continue to dominate the price discovery process.

Suggested Citation

Chan, Kalok and Menkveld, Albert J. and Yang, Zhishu, The Informativeness of Domestic and Foreign Investors' Stock Trades: Evidence from the Perfectly Segmented Chinese Market. Journal of Financial Markets, Vol. 10, No. 4, 2007. Available at SSRN: https://ssrn.com/abstract=424933 or http://dx.doi.org/10.2139/ssrn.424933

Kalok Chan (Contact Author)

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Albert J. Menkveld

VU 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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