Ownership Restriction, Information Diffusion Speed, and the Performance of Technical Trading Rules in Chinese Domestic and Foreign Shares Markets

Wei Li () and Steven Shuye Wang ()
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Wei Li: School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong, China
Steven Shuye Wang: School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong, China

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2007, vol. 10, issue 04, 585-617

Abstract: We examine the performance of technical trading rules in Chinese domestic A-share and foreign B-share markets. After controlling for non-synchronous trading and transaction costs, we find evidence to support the predictability and profitability of some of the most popular technical trading rules for B-shares but not for A-shares. However, after February 19, 2001, when domestic investors were allowed to trade B-shares, the predictive power of the trading rules in B-share markets disappeared. We conjecture that the predictability of technical trading rules in B-share markets can be attributed to the gradual diffusion of information among foreign investors under the foreign share ownership restriction, and, partly, to positive autocorrelations induced by thin trading.

Keywords: Technical trading rules; ownership restriction; information diffusion; non-synchronous trading; transaction costs; JEL Classification: G12; JEL Classification: G14; JEL Classification: G15 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091507001215

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