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.

No abstract

No abstract

No abstract