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Are Domestic Investors Better Informed than Foreign Investors? : Evidence from the Perfectly Segmented Market in China

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Author Info
Chan, Kalok (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)
Menkveld, Albert J.
Yang, Zhishu

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Abstract

This paper uses the perfect market segmentation setting in China's stock market to examine whether foreign investors are at informational disadvantage relative to domestic investors. We analyze the price discovery roles of the A- (domestic investors) and B-share (foreign investors) markets in China using a new database of transactions data. Before Feb 19, 2001, the A-share market leads the B-share market in price discovery - the signed volume and quote revision of the A-share market have strong predictive ability for B-share quote returns, but not vice versa. After Feb 19, 2001, because some domestic investors are allowed to invest on the B-share market, we also find evidence for a reverse causality from the B-share to the A-share market. Nevertheless, the Hasbrouck (1995) information share analysis reveals that A-shares continue to dominate price discovery.

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Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0004.

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Date of creation: 2006
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Handle: RePEc:dgr:vuarem:2006-4

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Related research
Keywords: Market microstructure; Informational role; Segmented markets; Chinese stock markets;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2006. "Information Asymmetry and Asset Prices: Evidence from the China Foreign share discount," Serie Research Memoranda 0005, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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