Decomposing the Bid-Ask Spread in a Segmented Equity Market: Analyzing Chinese A Shares Versus B Shares

Zhian Chen and Xin Cui

Emerging Markets Finance and Trade, 2012, vol. 48, issue 4, 30-49

Abstract: Because of a regulatory policy change in February 2001, the segmentation of the Chinese stock market significantly decreased. Using this event, we show that the Chinese A-share market is more informationally efficient than the B-share market, both before and after the opening of the B-share market. Furthermore, after the event, both the adverse selection and the order-processing component of B shares decreased, as a result of a larger investor base and possibly a lower proportion of informed investors. This study thus sheds new light on the market segmentation and its effect on transaction costs.

Keywords: bid-ask spread; China; market segmentation (search for similar items in EconPapers)
Date: 2012
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