Reportgreen2005

Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia

Jianping Mei · Wei Xiong · José Scheinkman

321 citations0/0 files storedNational Bureau of Economic Research

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Financial Markets and Investment Strategies Corporate Finance and Governance Stochastic processes and financial applications

Abstract

The market dynamics of technology stocks in the late nineties has stimulated a growing body of theories that analyze the joint effects of short-sales constraints and heterogeneous beliefs on stock prices and trading volume. This paper examines implications of these theories using a unique data sample from China, a market with stringent short-sales constraints and perfectly segmented dual-class shares. The identical rights of the dual-class shares allow us to control for stock fundamentals. We find that trading caused by investors' speculative motive can help explain a significant fraction of the price difference between the dual-class shares.

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References

1978Specification Tests in Econometrics 1973Risk, Return, and Equilibrium: Empirical Tests 2003Liquidity Risk and Expected Stock Returns 1986Asset pricing and the bid-ask spread 2002Market Timing and Capital Structure 2003Overconfidence and Speculative Bubbles 2002Differences of Opinion and the Cross Section of Stock Returns 1982Calibration of probabilities: The state of the art to 1980

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