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The speed of adjustment to information: Evidence from the Chinese stock market

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  • Chiang, Thomas C.
  • Nelling, Edward
  • Tan, Lin

Abstract

This paper examines the speed of price adjustment in Chinese A- and B-share stock markets. We use a VAR model to show that A-shares, which are owned primarily by domestic individual investors, adjust to information faster than do B-shares, which are owned primarily by foreign institutional investors. Our analysis of firm characteristics suggests that the speed of stock price adjustment for A-shares is related to earnings per share, while that for B-shares is related to firm size. We also find that A-shares react more quickly to bad news, while B-shares react more quickly to good news. The difference in the speed of adjustment between A- and B-shares decreased following the liberalization of financial policy in February 2001, which allowed domestic investors to purchase B-shares.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 17 (2008)
Issue (Month): 2 ()
Pages: 216-229

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Handle: RePEc:eee:reveco:v:17:y:2008:i:2:p:216-229

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Web page: http://www.elsevier.com/locate/inca/620165

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References

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  1. Marcello Pericoli & Massimo Sbracia, 2001. "A Primer on Financial Contagion," Temi di discussione (Economic working papers) 407, Bank of Italy, Economic Research and International Relations Area.
  2. Kim, Kenneth A. & Limpaphayom, Piman, 2000. "Characteristics of stocks that frequently hit price limits: Empirical evidence from Taiwan and Thailand," Journal of Financial Markets, Elsevier, vol. 3(3), pages 315-332, August.
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  5. Bessembinder, Hendrik & Chan, Kalok & Seguin, Paul J., 1996. "An empirical examination of information, differences of opinion, and trading activity," Journal of Financial Economics, Elsevier, vol. 40(1), pages 105-134, January.
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  12. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
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Citations

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Cited by:
  1. Enzo Weber & Yanqun Zhang, 2008. "Common Influences, Spillover and Integration in Chinese Stock Markets," SFB 649 Discussion Papers SFB649DP2008-072, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. He, Yan & Wang, Junbo & Wu, Chunchi, 2013. "Domestic versus foreign equity shares: Which are more costly to trade in the Chinese market?," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 465-481.
  3. Yao, Juan & Ma, Chuanchan & He, William Peng, 2014. "Investor herding behaviour of Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 12-29.
  4. Hsu, Pao-Peng & Liao, Szu-Lang, 2012. "The portfolio strategy and hedging: A spectrum perspective on mean–variance theory," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 129-140.

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