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Does Cross-Listing Really Enhance Market Efficiency for Stocks Listed in the Home Market? The Perspective of Noise Trading in the Chinese Stock Market

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  • Yingyi Hu
  • Tiao Zhao

Abstract

The investor recognition hypothesis and the bonding hypothesis, which help us understand the market quality of stocks that are cross-listed on different stock markets, imply improved market efficiency after cross-listing because of increased investor participation. However, the noise trading of inexperienced investors in the Chinese stock market negatively affects market efficiency. By employing propensity score matching and multivariate regression analysis, we show that the increased individual investor participation actually lowers market efficiency in their home market after cross-listing. This effect is more evident for stocks that were either listed first on the Chinese stock market or listed on the Chinese stock market and the Hong Kong stock exchange (SEHK) on the same date than for stocks that were listed first on the SEHK.

Suggested Citation

  • Yingyi Hu & Tiao Zhao, 2018. "Does Cross-Listing Really Enhance Market Efficiency for Stocks Listed in the Home Market? The Perspective of Noise Trading in the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(2), pages 307-327, January.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:2:p:307-327
    DOI: 10.1080/1540496X.2017.1336085
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    Cited by:

    1. Sang Ho Kim & Yohan An & Prabhu Udawatte, 2020. "Does Foreign Ownership Restrict Earnings Management? The Case of China," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 16(1), pages 63-86.
    2. Hassan, Kamrul & Hoque, Ariful & Wali, Muammer & Gasbarro, Dominic, 2020. "Islamic stocks, conventional stocks, and crude oil: Directional volatility spillover analysis in BRICS," Energy Economics, Elsevier, vol. 92(C).

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