Information asymmetry, price discovery, and the Chinese B-share discount puzzle

John Doukas () and Liu Wang

Pacific-Basin Finance Journal, 2013, vol. 21, issue 1, 1116-1135

Abstract: This paper addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle, contingent upon Chinese stock market liberalization reforms in 2001 and 2002. In contrast with the widespread notion that domestic investors are better informed than foreign investors, this study shows that foreign investors actually possess more value-relevant, firm-specific information in emerging markets, where information transparency and investor protection rights are relatively weak. As such, the observed B-share discount is not compensation for the informational disadvantage of foreign investors but, rather, the result of a downward price correction (toward the fundamental values) once more firm-specific information is capitalized by sophisticated foreign investors in the B-share market. The price correction effect is significant even after controlling for several alternative explanations. Further investigation suggests a mitigated degree of information asymmetry and B-share discount upon market liberalization.

Keywords: Information asymmetry; B-share discount; Price synchronicity; Market liberalization; China (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:21:y:2013:i:1:p:1116-1135

DOI: 10.1016/j.pacfin.2012.08.004

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