TITLE:
Choice of Information Learning: Evidence from Revisiting Price Discovery during the 2006 Dual Listing Craze in China
AUTHORS:
Yingchao Zhang, Xiang Gao, Shuzhen Niu
KEYWORDS:
Learning Choice, Home Bias, Price Discovery, Asymmetric Information
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.6,
December
9,
2021
ABSTRACT: Extant studies have proposed information choice
models to explain the home bias puzzle. In this paper, we explore information
asymmetries among local and non-local investors which are captured by market
microstructure variables to explain the repercussions of their information
choices. We examine the short-run price dynamics, co-integrating relations, and
price discovery processes of cross-listed Chinese firms. Using high-frequency
data over the year 2006 of dual listing craze in history, we find that the
local A-share market contributes to the price discovery for 68% to 75% of the
firms, which is far more than the contribution of the non-local H-share market.
Our results support the learning choice model and suggest that local Chinese
investors may be endowed with a small home information advantage and their
learning choices magnify information asymmetry. As such, the local stock market
incorporates new information faster and contributes more to the price discovery
of dual-listed firms in mainland China.