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Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount
Author(s) -
CHAN KALOK,
MENKVELD ALBERT J.,
YANG ZHISHU
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01313.x
Subject(s) - information asymmetry , univariate , equity (law) , capital asset pricing model , market share , financial economics , economics , china , econometrics , asset (computer security) , adverse selection , share price , market microstructure , business , monetary economics , multivariate statistics , actuarial science , microeconomics , order (exchange) , statistics , finance , mathematics , computer security , political science , computer science , law , stock exchange
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.