Information Diffusion, Transaction Costs, and the Performance of Technical Trading Rules in the Emerging Stock Markets of China

35 Pages Posted: 7 May 2004

See all articles by Steven Shuye Wang

Steven Shuye Wang

School of Business, Renmin University of China

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 2004

Abstract

We examine the performance of technical trading rules in the emerging Chinese stock markets. After controlling for non-synchronous trading and transaction costs, we find significant evidence to support the predictability and profitability of technical rules for Chinese foreign B-shares but not for domestic A-shares. The index returns of B-shares can be explained by one-day-lagged own market trading signals, but not by the trading signals emitted from the corresponding A-share market or from the U.S. market (a proxy for the international market). However, after February 19, 2001, when domestic investors were allowed to trade B-shares, the predictive power of the trading rules in B-share markets disappeared. We conclude that the predictability of technical trading rules in B-share markets can be attributed to the gradual diffusion of information among foreign investors under the foreign share ownership restriction, and, partly, to positive autocorrelations induced by thin trading.

Keywords: Trading rules, Information diffusion, Transaction costs, Ownership restriction

JEL Classification: G12, G14, G15, C61

Suggested Citation

Wang, Steven Shuye and Li, Tina Wei, Information Diffusion, Transaction Costs, and the Performance of Technical Trading Rules in the Emerging Stock Markets of China (January 2004). Available at SSRN: https://ssrn.com/abstract=487783 or http://dx.doi.org/10.2139/ssrn.487783

Steven Shuye Wang

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

Tina Wei Li (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

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