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Share Price Response to New Information with Short Horizon Investors the Case of Hong Kong

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  • Pauline M. Shum

    ()
    (York University, Canada)

  • James E. Pesando

    ()
    (University of Toronto, Canada)

Abstract

The reversion of Hong Kong to Chinese rule in 1997, formalized in 1984, is fast approaching. The Hong Kong stock market thus provides a natural laboratory in which to explore the implications of "noise trader" and other models which highlight the link between short-horizon investors and price volatility. We use changes in the degree of serial correlation in daily returns to draw inferences regarding the over-reaction of Hong Kong stock prices to economic and to political news during the period 1984 to 1993. We find that subsequent to the June 4 massacre in 1989, but not before, there is significant over-reaction of stock prices in Hong Kong to changes in the U.S. treasury bill rate and to an index of favourable and unfavourable political news. We interpret these findings as evidence that the importance of short-horizon investors increased after the June 4 massacre, and contributed to the observed volatility of Hong Kong stock prices.

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File URL: ftp://dept.econ.yorku.ca/pub/working_papers/97-02.pdf
File Function: First version, 1996
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Bibliographic Info

Paper provided by York University, Department of Economics in its series Working Papers with number 1997_02.

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Length: 29 pages
Date of creation: Sep 1996
Date of revision:
Handle: RePEc:yca:wpaper:1997_02

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  1. Campbell, John Y & Grossman, Sanford J & Wang, Jiang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 905-39, November.
  2. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
  3. Robert F. Engle & Victor K. Ng, 1991. "Measuring and Testing the Impact of News on Volatility," NBER Working Papers 3681, National Bureau of Economic Research, Inc.
  4. Lamoureux, Christopher G & Lastrapes, William D, 1990. " Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-29, March.
  5. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "The Size and Incidence of the Losses from Noise Trading," NBER Working Papers 2875, National Bureau of Economic Research, Inc.
  6. Diebold, Francis X & Nerlove, Marc, 1989. "The Dynamics of Exchange Rate Volatility: A Multivariate Latent Factor Arch Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-21, Jan.-Mar..
  7. Froot, Kenneth A & Scharftstein, David S & Stein, Jeremy C, 1992. " Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," Journal of Finance, American Finance Association, vol. 47(4), pages 1461-84, September.
  8. Mitchell, Mark L & Mulherin, J Harold, 1994. " The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-50, July.
  9. Hawawini, Gabriel & Cohen, Kalman & Maier, Steven & Schwartz, Robert & Whitcomb, David, 1980. "Implications of microstructure theory for empirical research in stock price behavior," MPRA Paper 33976, University Library of Munich, Germany.
  10. Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990. "Speculative Dynamics And The Role Of Feedback Traders," Working papers 545, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. McQueen, Grant & Pinegar, Michael & Thorley, Steven, 1996. " Delayed Reaction to Good News and the Cross-Autocorrelation of Portfolio Returns," Journal of Finance, American Finance Association, vol. 51(3), pages 889-919, July.
  12. Ng, Victor & Engle, Robert F. & Rothschild, Michael, 1992. "A multi-dynamic-factor model for stock returns," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 245-266.
  13. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
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