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The informativeness of domestic and foreign investors’ stock trades: Evidence from the perfectly segmented Chinese market
Authors:Kalok Chan  Albert J Menkveld  Zhishu Yang
Institution:aDepartment of Finance, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong;bFEWEB, Vrije Universiteit Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, Netherlands;cSchool of Economics and Management, Tsinghua University, Beijing, 100084, PR China
Abstract:This paper uses the perfect market segmentation setting in China's stock market to compare the information content of the stock trades of domestic and foreign investors. We study 76 firms that issue both A-shares (for domestic investors) and B-shares (for foreign investors) and compare the price discovery role of the two segmented markets in China. Before Feb 19, 2001, the A-share market led the B-share market in price discovery, as the signed volume and quote revision of the A-share market had strong predictive ability for B-share quote returns, but not vice versa. After Feb 19, 2001, because some domestic investors were allowed to invest in the B-share market, we find evidence for a reverse causality from the B-share to the A-share market. Nevertheless, the Hasbrouck (1995). One security, many markets: determining the contributions to price discovery, Journal of Finance 50, 1175–1199.] information share analysis reveals that A-shares continue to dominate the price discovery process.
Keywords:Market microstructure  Informational role  Segmented market  Domestic vs  foreign investors  Chinese stock markets
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