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Beauties of the emperor: An investigation of a Chinese government bailout

Yeguang Chi and Xiaoming Li

Journal of Financial Markets, 2019, vol. 44, issue C, 42-70

Abstract: We study the Chinese government's stock market bailout operation in 2015. We focus on the bailout's opaque nature and explore its unintended consequences in both asset prices and investor behavior. We find that: (1) the market overreacts to the bailout news under partial information, which leads to substantial mispricing until full information is revealed; (2) institutional investors possess an informational advantage over retail investors in uncovering the bailout's full scale and target stocks; (3) institutional investors react to the bailout news promptly; and (4) retail investors initially underreact to the bailout news but eventually overreact.

Keywords: Government intervention; Information transparency; Information asymmetry; Behavioral bias; Investor welfare (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 G28 G41 (search for similar items in EconPapers)
Date: 2019
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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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Handle: RePEc:eee:finmar:v:44:y:2019:i:c:p:42-70