A comparison of China's main board and growth enterprise market board - Market microstructure approach

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3 Citations (Scopus)

Abstract

We compare the market quality of the newly established, second board of the China stock market, the Growth Enterprise Market (GEM) with the Main Board, and examine its impact on the Main Board from the market microstructure perspective. Using the newly available transaction level data, several findings emerge. First, trading activities of the Main Board stocks increase after the introduction of GEM Board, suggesting that the establishment of GEM is not at the expense of the Main Board but instead enhance the overall trading activities in China. Pricing error variances are not different in the two Boards, while GEM stocks have larger adverse selection cost component of bid-ask spread and higher probability of information-based trading which indicate a larger information asymmetry among traders, on average in GEM stocks than those in the Main Board. Interestingly, we find that the 15 min returns of Main Board stocks strongly lead that of GEM stocks but the GEM board only weakly leads Main Board, evidencing information transmission from the Main Board to the GEM. Overall, our findings suggest that the market quality of the GEM is sufficiently good to provide an important, alternative listing venue for high potential firms in China.

Original languageEnglish
Article number1450007
JournalReview of Pacific Basin Financial Markets and Policies
Volume17
Issue number2
DOIs
Publication statusPublished - 2014
Externally publishedYes

Fingerprint

China
Market microstructure
Stock market
Trading activity
Market quality
Information transmission
Traders
China's stock market
Information asymmetry
Information-based trading
Bid/ask spread
Expenses
Adverse selection costs
Pricing errors

Keywords

  • China growth enterprise market
  • information asymmetry
  • market quality
  • pricing error

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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abstract = "We compare the market quality of the newly established, second board of the China stock market, the Growth Enterprise Market (GEM) with the Main Board, and examine its impact on the Main Board from the market microstructure perspective. Using the newly available transaction level data, several findings emerge. First, trading activities of the Main Board stocks increase after the introduction of GEM Board, suggesting that the establishment of GEM is not at the expense of the Main Board but instead enhance the overall trading activities in China. Pricing error variances are not different in the two Boards, while GEM stocks have larger adverse selection cost component of bid-ask spread and higher probability of information-based trading which indicate a larger information asymmetry among traders, on average in GEM stocks than those in the Main Board. Interestingly, we find that the 15 min returns of Main Board stocks strongly lead that of GEM stocks but the GEM board only weakly leads Main Board, evidencing information transmission from the Main Board to the GEM. Overall, our findings suggest that the market quality of the GEM is sufficiently good to provide an important, alternative listing venue for high potential firms in China.",
keywords = "China growth enterprise market, information asymmetry, market quality, pricing error",
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