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

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Author Info
Pauline M. Shum () (York University, Canada)
James E. Pesando () (University of Toronto, Canada)

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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
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File Function: First version, 1996
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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
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Handle: RePEc:yca:wpaper:1997_02

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  4. 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. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
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  12. Tim Bollerslev & Robert F. Engle & Daniel B. Nelson, 1993. "ARCH Models," University of California at San Diego, Economics Working Paper Series 93-49, Department of Economics, UC San Diego. [Downloadable!]
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    • Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038 Elsevier. [Downloadable!] (restricted)
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