Market Behaviour of Foreign Versus Domestic Investors Following a Period of Stressful Circumstances

45 Pages Posted: 22 Mar 2007

See all articles by Meziane Lasfer

Meziane Lasfer

Cass Business School, City, University of London

Sharon Lin

City University London - Sir John Cass Business School

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Date Written: March 15, 2007

Abstract

In this paper we analyse the short-term stock price behaviour following a period of large stock price changes. We compare the price behaviour of A shares owned by domestic investors and B shares owned by foreign investors in the two Chinese markets, Shanghai and Shenzhen. We find significant differences across the two types of shares. We show that, while the prices of the A shares are relatively random in the short-term window (up to 10 days) after the price shock, those of the B shares carry on increasing significantly after both the positive and negative shocks. This trend is more pronounced for large shares with high liquidity, in contrast to the efficient market hypotheses expectations, which suggests that any abnormal performance should be arbitraged away sooner in a frictionless (in this case liquid) market. In the post-2001 period when the B shares are open to domestic investors, we find a significant drop in the post-shock abnormal returns in B shares. We relate these results to the high level of optimism of foreign investors.

Keywords: Efficient Markets, Market Stress, Overreaction, Momentum, Optimism

JEL Classification: G1, F3

Suggested Citation

Lasfer, Meziane and Lin, Sharon and Muradoglu, Yaz Gulnur, Market Behaviour of Foreign Versus Domestic Investors Following a Period of Stressful Circumstances (March 15, 2007). Available at SSRN: https://ssrn.com/abstract=971993 or http://dx.doi.org/10.2139/ssrn.971993

Meziane Lasfer

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 20 7040 8634 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/m.a.lasfer/

Sharon Lin

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Yaz Gulnur Muradoglu (Contact Author)

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

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