The Information Transmission Effect and Asset Prices: Evidence from the China B-Share Discount

Szu-Lang Liao and Tsung-Ying Tsai

Emerging Markets Finance and Trade, 2015, vol. 51, issue S1, S73-S85

Abstract: We construct a model based on market microstructure and examine the information transmission effect of equity prices in A-share and B-share markets in China. The data on foreign share discounts raise a question: How are asset prices determined if uninformed foreign traders obtain signals by observing public information? Our investigation on the measure of the information transmission effect presents a substantial segment of the cross-sectional variation in B-share discounts and finds that the information transmission effect plays a critical role in explaining how foreign share discounts become more contractive.

Date: 2015
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DOI: 10.1080/1540496X.2014.998885

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