Market Segmentation and Information Asymmetry in Chinese Stock Markets: A VAR Analysis

This study examines the market segmentation and information asymmetry patterns in Chinese stock markets. The recursive cointegration analysis confirms that each of six markets is not linked with other markets in the long run. Further, the result from data-determined forecast error variance decomposition clearly shows that foreign investors in the Shanghai B-share market are better informed than Chinese domestic investors in two A-share markets and foreign investors in Shenzhen and Hong Kong markets over time. The finding challenges a widespread assumption of less informed foreign investors in the literature, but suggests that foreign investors could be more informed in emerging markets. Copyright 2003 by the Eastern Finance Association.