JEL Classification: G10; G12; G14
Key words: Copycat herding, Informed trading, Connected markets, Northbound flows, Round-trip trading
학회소식
[2019년 제 4차] Information Glitters on China’s Connected Market
작성자 : 관리자
조회수 : 39
게시일 :
2019-12-12
This paper explores a persistent mechanism through which investors profit from the potential information contained in capital flows from China’s connected market. Using a complete history of daily filings about stock-level holdings of all Hong Kong and international (northbound) investors, we document that weekly changes in northbound shareholdings (HPC) have a positive cross-sectional predictability for future stock returns. A long-short portfolio that exploits this differentiating preference earns abnormal returns of up to 61 basis points per week, which cannot be explained by common factors. Three sets of evidence suggest the information edge and trading impact of northbound investors: (1) HPC has stronger predictability around earnings announcements in firms with more international exposure and global accessibility (fundamental information edge hypothesis); (2) Combined with the similar trading behavior with opportunistic insiders, the sign of decay in return predictability after the “penetrating” supervision on investor identity also suggests that some northbound investors are probably mainland insiders with private information advantage that tend to make round-trip investment on A shares to hide identity (round-trip trading hypothesis); (3) The imitative herding of mainland investors following informed northbound flows would help boost the future price of specific stocks suffering excessive attention in the short run (copycat herding hypothesis). Time-series analysis reveals that northbound capital is a short-term predictor of market returns both in and out of sample. Besides, we also observe similar cross-sectional predictability for H-share returns in southbound institutional investors’ trading behavior.
