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 reper-cussions 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.
Zhang, Y., Gao, X., & Niu, S. (2021). Choice of Information Learning: Evidence from Revisiting Price Discovery during the 2006 Dual Listing Craze in China. Theoretical Economics Letters, 11(6), 1165-1182. https://doi.org/10.4236/tel.2021.116074