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Information asymmetry and asset prices: Evidence from the china foreign share discount

Authors Chan, Kalok View this author's profile
Menkveld, Albert J.
Yang, Zhishu
Issue Date 2008
Source JOURNAL OF FINANCE , v. 63, (1), 2008, Feb, p. 159-196
Summary We examine the effect of information asymmetry on equity prices in the local A- and foreign B-share market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44\% and 46\% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables.
ISSN 0022-1082
Language English
Format Article
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