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Is informational inefficiency priced in stock markets? A comparison between the U.S. and Chinese cases

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  • Yang, Baochen
  • Xue, Fangzhan
  • Su, Yunpeng
  • Yan, Cheng

Abstract

Using a sample of U.S. and Chinese stocks between July 1999 and June 2016, we investigate the pricing role of informational inefficiency in stock markets. We find that the relations between returns and the informational inefficiency factor statistically change from significantly positive, to insignificant, and further to significantly negative as informational efficiency increases. This finding provides new insights into the common belief that emerging markets are less efficient than developed markets. We propose new factor models for less efficient markets. Our conclusions are robust to alternative ways of sorting portfolios, to various subsample analyses, and to alternative factor models.

Suggested Citation

  • Yang, Baochen & Xue, Fangzhan & Su, Yunpeng & Yan, Cheng, 2019. "Is informational inefficiency priced in stock markets? A comparison between the U.S. and Chinese cases," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 222-238.
    • Handle: RePEc:eee:pacfin:v:55:y:2019:i:c:p:222-238
    DOI: 10.1016/j.pacfin.2019.04.005
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    Cited by:

    1. Subhamitra Patra & Gourishankar S. Hiremath, 2022. "An Entropy Approach to Measure the Dynamic Stock Market Efficiency," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(2), pages 337-377, June.
    2. Ren, Xiaohang & Zhang, Xiao & Yan, Cheng & Gozgor, Giray, 2022. "Climate policy uncertainty and firm-level total factor productivity: Evidence from China," Energy Economics, Elsevier, vol. 113(C).
    3. Zhang, Jinhua & Wang, Guipu & Yan, Cheng, 2020. "Can foreign equity funds outperform their benchmarks? New evidence from fund-holding data for China," Economic Modelling, Elsevier, vol. 90(C), pages 11-20.
    4. Dai, Zhifeng & Zhang, Xiaotong, 2023. "Climate policy uncertainty and risks taken by the bank: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 87(C).

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