In contrast to most other countries, Chinese foreign class B shares trade at an average discount of about 60 percent to the prices at which domestic A shares trade. We argue that one reason for the large price discount of B shares is because foreign investors have less information on Chinese stocks than domestic investors. We develop a model, incorporating both informational asymmetry and market segmentation, and derive a relative pricing equation for A shares and B shares. We show theoretically that an A share index security, tradable by foreigners, increases the liquidity of B shares. Our empirical study of Chinese stocks supports the predictions of our model. Specifically, we show that our model-based proxies for informational asymmetry explain a significant portion of the cross-sectional variation of the B share discounts.

This paper investigates the market reactions to regulator-initiated (mandatory) suspension and issuer-initiated (voluntary) suspension on the Stock Exchange of Hong Kong. It is found that there is substantial devaluation of the stocks during either suspension, and both the variance and trading volume are higher in the post-suspension period than in the pre-suspension period. However, the changes in value and variance are sensitive to the reason for the suspension. The evidence shows that mandatory suspensions are more effective than voluntary suspensions in disseminating information, although both suspensions may not effectively ease unusual volatility immediately. Copyright Blackwell Publishers Ltd 1998.

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This study extends the cross-listing literature by examining how, and to what extent, the trading of cross-listed China-backed ADRs on the New York Stock Exchange contributes to information flows and price discovery for the corresponding stocks traded in China's A-share market. We find that the cross-listed US prices and Chinese prices are not cointegrated in the long-run and the home market plays a far more important role in both price discovery and volatility spillover than does the US market. The home bias hypothesis still holds for the segmented Chinese A-share market and the location where price discovery actually originates is the essential factor in the process of international information transmission. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

Sarkar and Wu are grateful to the Office for Futures and Options Research of the University of Illinois at Urbana-Champaign for financial support, and to the Commodity Futures Trading Commission and the Chicago Mercantile Exchange for the provision of data. We also thank the referee, the editor, Paul H. Malatesta, and seminar participants at the Federal Reserve Banks of Atlanta and New York for comments. The views stated here are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York, the Federal Reserve System or the Commodity Futures Trading Commission or their respective staffs. All errors and omissions are our responsibility alone.