Posted: 20 Jul 1998
Listed companies in China upon meeting certain requirements can issue two types of shares: A shares and B shares. Local investors in China can only buy and sell A shares, while foreign investors can only trade B shares. We argue that foreign investors may receive news about China faster than domestic Chinese investors because of information barriers currently existing in China. Since foreigners participate in the B-share market, the price movements of B shares will thus reflect the common information that the foreigners have. Rational A-share investors can therefore condition their trading decisions on the previous price movements of B shares. As a result, returns on B shares lead the returns on A shares. Using daily prices of A and B shares, we demonstrate that returns of B shares are correlated with those of A shares and that this correlation depends on the information transmission mechanism at work. The pattern of the asymmetric cross-autocorrelation is robust to the inclusion of the lagged realized returns and the trading volumes.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Chui, Andy C.W. and Kwok, Chuck C.Y., Cross-autocorrelation between A Shares and B Shares in the Chinese Stock Market. Journal of Financial Research. Available at SSRN: https://ssrn.com/abstract=89628