Chan, K., Menkveld, A. and Yang, Z. (2008). Information Asymmetry and Asset Prices: Evidence from the Foreign Share Discount The Journal of Finance, 63(1):159--196.

  • Journal
    The Journal of Finance

We examine the effect of information asymmetry on equity prices in the local A- and foreign B-share market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44% and 46% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables. © 2008 by The American Finance Association.