A Comparison of China's Main Board and Growth Enterprise Market Board — Market Microstructure Approach

William Cheung () and Kejing Liu ()
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William Cheung: Department of Finance and Business Economics, Faculty of Business Administration, University of Macau, Taipa, Macau, P. R. China
Kejing Liu: inVentiv Health Clinical, Suite 1507-1508, Tower One Grand Gateway, #1, Hongqiao Road, Xuhui District, Shanghai, P. R. China

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2014, vol. 17, issue 02, 1-29

Abstract: We compare the market quality of the newly established, second board of the China stock market, the Growth Enterprise Market (GEM) with the Main Board, and examine its impact on the Main Board from the market microstructure perspective. Using the newly available transaction level data, several findings emerge. First, trading activities of the Main Board stocks increase after the introduction of GEM Board, suggesting that the establishment of GEM is not at the expense of the Main Board but instead enhance the overall trading activities in China. Pricing error variances are not different in the two Boards, while GEM stocks have larger adverse selection cost component of bid-ask spread and higher probability of information-based trading which indicate a larger information asymmetry among traders, on average in GEM stocks than those in the Main Board. Interestingly, we find that the 15 min returns of Main Board stocks strongly lead that of GEM stocks but the GEM board only weakly leads Main Board, evidencing information transmission from the Main Board to the GEM. Overall, our findings suggest that the market quality of the GEM is sufficiently good to provide an important, alternative listing venue for high potential firms in China.

Keywords: China growth enterprise market; pricing error; information asymmetry; market quality (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2014
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091514500076

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