Share Price Response to New Information with Short Horizon Investors the Case of Hong Kong

Pauline Shum and James Pesando

Working Papers from York University, Department of Economics

Abstract: The reversion of Hong Kong to Chinese rule in 1997, formalized in 1984, is fast approaching. The Hong Kong stock market thus provides a natural laboratory in which to explore the implications of "noise trader" and other models which highlight the link between short-horizon investors and price volatility. We use changes in the degree of serial correlation in daily returns to draw inferences regarding the over-reaction of Hong Kong stock prices to economic and to political news during the period 1984 to 1993. We find that subsequent to the June 4 massacre in 1989, but not before, there is significant over-reaction of stock prices in Hong Kong to changes in the U.S. treasury bill rate and to an index of favourable and unfavourable political news. We interpret these findings as evidence that the importance of short-horizon investors increased after the June 4 massacre, and contributed to the observed volatility of Hong Kong stock prices.

Pages: 29 pages
Date: 1996-09
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ftp://dept.econ.yorku.ca/pub/working_papers/97-02.pdf First version, 1996

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Persistent link: https://EconPapers.repec.org/RePEc:yca:wpaper:1997_02

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