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Cross-autocorrelation between A Shares and B Shares in the Chinese Stock Market

Posted: 20 Jul 1998  

Andy C.W. Chui

Hong Kong Polytechnic University

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Abstract

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

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

Andy Chun Wai Chui

Hong Kong Polytechnic University ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
(852)2 766 7105 (Phone)
(852) 2 765-0611 (Fax)

Chuck C.Y. Kwok (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

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