An Empirical Analysis of Information Efficiency of the Chinese Stock Market

Abstract: The purpose of the thesis was to describe the Chinese stock market in order to analyse investors’ response to information release. We have studied a sample of Chinese companies listed on both the domestic stock exchange and the Hong Kong stock exchange. There are regulations regarding ownership of different stocks. International investors are not allowed to own type A-shares. These are primary owned by the Chinese government and large institutions. Investors interested in Chinese stocks have to invest in type H-shares listed in Hong Kong. We have concluded with an event study that there are differences in information interpretation. The results are that the different types of shares behave differently. Our interpretation is that insiders act prior to the public releases of crucial information. We argue that this indicates insider trading. However there are several variables not incorporated in our studies which may have a great influence on the stock movements. The most obvious explanation of the smaller motions of A-shares are that these are less liquid and the owners have restrictions in trading thus not able to act as fast on information.