Lifan Wu

Information asymmetry, market segmentation and the pricing of cross-listed shares: theory and evidence from Chinese A and B shares

Abstract In contrast to most other countries, Chinese foreign class B shares trade at an average discount of about 60% 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 information 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 information asymmetry explain a significant portion of the cross-sectional variation of the B share discounts.

Price Transmission and Market Openness A Comparative Analysis of Asian Stock Markets

This paper studies the degree of impact of stock prices listed on the New York Stock Exchange and Tokyo Stock Exchange regarding price behavior in Asian stock markets. Our evidence shows that the pattern and magnitude of impact varies. Returns in Hong Kong, Singapore, and Malaysia are more sensitive than those in Taiwan, Korea and Thailand. The response patterns in the Asian markets suggest that foreign influence is significantly correlated to the degree of market openness.