TY - JOUR
T1 - A comparison of China's main board and growth enterprise market board - Market microstructure approach
AU - Cheung, William
AU - Liu, Kejing
N1 - Funding Information:
We thank Cheng-Few Lee (editor); two anonymous referees; Nan-ting Chou (Discussant, SFM 2011), Scott Fung, Thomas Gehrig, Adrian Lei, Tai Ma, Lewis Tam, Stephan Unger, Alfred Yawson (Discussant, MISAF 2011); seminar participants at University of Macau, the 19th Conference on the Theories and Practices of Securities and Financial Markets (SFM 2011, Kaohsiung) and Macao International Symposium of Accounting and Finance (MISAF 2011, Macao) for valuable comments. William Cheung acknowledge the financial support of University of Macau, RG013/08-09S/10R.
PY - 2014/6
Y1 - 2014/6
N2 - 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.
AB - 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.
KW - China growth enterprise market
KW - information asymmetry
KW - market quality
KW - pricing error
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U2 - 10.1142/S0219091514500076
DO - 10.1142/S0219091514500076
M3 - Article
AN - SCOPUS:84902543241
SN - 0219-0915
VL - 17
JO - Review of Pacific Basin Financial Markets and Policies
JF - Review of Pacific Basin Financial Markets and Policies
IS - 2
M1 - 1450007
ER -