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
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.
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