Hot Trading and Price Stability Under Media Supervision in the Chinese Stock Market (original) (raw)

Demystifying China’s Stock Market: The Hidden Logic Behind the Puzzles

Demystifying China’s Stock Market, 2019

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Media Tone and Stock Price Crash Risk: Evidence from China

Mathematics

Following the 2008 financial crisis, multiple studies have contributed to the research on stock price crashes. However, most of the studies on stock price crashes are from the corporate management perspective, focusing on factors such as the board’s character, the CEO’s power, the brand’s capital, and ESG performance. Few studies have taken external information, such as media coverage, into consideration. Meanwhile, in the era of 5G, internet media has witnessed exponential growth, heavily enhancing the speed of information transmission; this could possibly impact the future risk associated with stock price crashes. From this perspective, our study extends the coverage by investigating the relationship between internet media coverage and the potential risk of stock price crashes. Using a comprehensive dataset of the Chinese stock market from 2008 to 2021, we found that the optimistic (pessimistic) tones of internet media were positively (negatively) correlated with the future risk o...

Price Manipulation and Industry Momentum: Evidence from the Chinese Stock Market

SSRN Electronic Journal, 2000

Recent theoretical studies show that trade-based stock price manipulation is a possible source of the momentum effect. This paper proposes three sets of testable hypotheses and provides empirical evidence for a manipulation-based explanation of momentum. Using weekly data on 14 CITIC industries in the Shanghai A-share market from 1997 to 2006, our analysis of industry momentum shows that cumulative returns first increase then decrease across holding periolds, and the returns monotonically decrease across formation periods. This return pattern is consistent with a so-called "pump and dump" scheme, where momentum is created by manipulators and chased by speculators. We attribute the source of momentum to the positive ownautocorrelation, which dominates the cross-autocorrelation effect of industry returns. We also find that momentum profits are higher in the bull than in bear market, and most of the profits come from the gains of winning industries rather than the losses of losing industries. These empirical results, when related to some well-documented behavioral biases of Chinese speculators, tell us a possible stock-market manipulation story of momentum.

Contrarian and momentum strategies in the China stock market: 1993–2000

Pacific-Basin Finance Journal, 2002

Using data on ''A'' shares, accessible only to local investors in China, we find statistically significant abnormal profits for some short-horizon contrarian and intermediate-horizon momentum strategies. Further analysis indicates that: (1) overreaction to firm-specific information is the single most important source of short-term contrarian profits; (2) the intermediate-term momentum profits are not, however, distinct due to the dominance of overreaction effect; and (3) the negative crossserial correlation contributes to momentum profits. The lead-lag structure in China is unique in that (i) lag firms follow lead firms in the opposite direction and (ii) large firms lead small firms in holding periods from 1 to 8 weeks, while small firms lead large firms in holding periods from 12 to 26 weeks. These findings are robust to bid-ask spread and nonsynchronous trading, time-varying market risk and firm-size effect.

Investors' reactions to sharp price changes: Evidence from equity markets of the People's Republic of China

Global Finance Journal, 2011

We examine investors' reactions to extreme price changes in Chinese equity markets to uncover patterns of price formation. We compare the price behavior and volatility of "A" and "B" shares in both the Shanghai and Shenzhen markets within a 30-day window following the arrival of new information to the market. We find that the arrival of unexpected news resulting in sharp price changes significantly increases market volatility in China and that the subsequent price adjustments exhibit upward corrective patterns. Contrary to findings for other markets, these results are consistent with the prediction of the Uncertain Information Hypothesis. In reaction to both favorable and unfavorable information, investors in Chinese equity markets initially set equity prices below their fundamental values and subsequent price trends register an upward adjustment. These findings suggest that investors in Chinese stock markets react rationally to the arrival of unexpected information and that no contrarian strategy can be utilized to generate abnormal return.

Institutional Trading in Volatile Markets: The Case of Chinese Stock Markets

SSRN Electronic Journal, 2019

We investigate all listed firms in Shanghai and Shenzhen stock Exchanges on extreme market movement days over 2010 to 2017, and highlight the important role of price limit on post extreme day stock returns. Utilising daily cash flow data of the largest trading group as a proxy of institutional investors trading behaviour, we identify institutional investors' consistently destabilizing effects on extreme days across two markets. We further show the upper (lower) price limit hitting stocks continue to increase (decrease) for at least two subsequent days, and find evidence of long run price reversal for lower hitting stocks. Finally we find the greater net buy by large traders the higher abnormal return in three subsequent days of the upper price limit hitting regular stocks, while the net sell on extreme days tend to predict the positive subsequent abnormal returns.

Investors’ Behaviour in the Chinese Stock Exchanges: Empirical Evidence in a Systemic Approach

Social Science Research Network, 2007

This paper investigates the Chinese mainland Stock Exchanges and their following interconnecting features: savers' attitude towards stock investments, investors' trading behaviour and stock returns explanations. We evaluate the effectiveness of the recent efforts made by the Chinese authorities to improve the level of legal protections for shareholders and the opening-up of the Chinese Stock Markets to foreign investors. The whole analysis is carried out through a system of simultaneous equations. The main results are that Chinese shareholders and stock markets are mostly driven by emotional behaviour. Stock market returns are barely influenced by the overall chinese economic booming, but reveal the presence of speculative influences. Investors' behaviour, as well as general trading activities, hardly seems to be affected by the legal framework introduced by the national Authorities.

The sickle and the garlic chives: Volatility in the Chinese stock market

Finance and Society, 2023

This essay explores the meaning that volatility assumes in the Chinese stock market context. Drawing on discussions from 'mom and pop' online forums, it argues investors operate in a relational position with the Chinese state regulators that both sustain and threaten their market activities. Chinese stock markets are known to be the most volatile in the world. To face the state's arbitrary intervention in the market, investors must constantly juggle the options of either leaning on and trusting the regulators' capacity to protect and rescue their stocks or engaging in risky margin trading and short-selling activities. This contradictory behavior is reflected in the popular self-mocking meme that keeps circulating in investors online forums, the one of the jiucai (meaning 'garlic chives'). The investors often use it with irony to describe their own tendency to throw cash into the markets again and again, hoping to regain the money they lost in previous investments, never learning a lesson. Linking the financial with the biopolitical dimension, the essay takes the jiucai meme to show the extent to which volatility points to the production of new subjects whose resilience involves the adoption of practices of speculation to conjure a future for themselves that is reborn multiple times.

Transparency in Chinese stocks: A study of earnings forecasts by professional analysts

Pacific-Basin Finance Journal, 1999

We utilize individual analysts forecasts of Chinese stocks to measure the transparency of the Chinese capital market. We find that the aggregate analysts forecast errors of all Chinese shares are around twice that of their control group, the shares of Hong Kong companies, and are also higher than those of several developed and developing Asia Pacific countries. The measure depends on factors related to the transparency of a market such as the location of the exchange and the market value of the firms. We present evidence that lack of transparency of shares in a country could be costly. Specifically, market valuations Ž . Ž . of more less transparent Chinese shares are priced higher lower . q 1999 Elsevier Science B.V. All rights reserved. JEL classification: G15; P30; M40 0927-538Xr99r$ -see front matter q 1999 Elsevier Science B.V. All rights reserved.

Hot off the Press: Can Media Tone Influence Investor Behavior in the Philippine Stock Market?

At this age of information where media has become such a significant force in society, it begs the question, "Can media influence the way investors make their investment decisions?" One of the most important assumptions of behavioral finance is that investors make use of information, which include what they could find in the media, to make investment decisions. However, there have been very few studies made regarding the effect of media-expressed negative tone towards next period stock returns. This study pioneers on quantifying media-expressed negative tone through content analysis and analyzing its effect on firm-level stock returns in the emerging market economies such as the Philippines. The study focuses on the top 20 companies found in the Philippine Stock Exchange (PSE) which have sufficient news coverage from the years 2006-2015. Using Random Effects Model and Rolling Window Vector Autoregression Model, the researchers were able to prove that the presence of negative tone in news adversely affect the next period stock return of all stocks observed in the study. Furthermore, the researchers examined whether these negative effects are enduring or transitory. It revealed that majority of the negative effect of negative was persistent over several periods in time. Finally, to highlight practical application of the study to investors, the researchers attempted to determine the optimal buying window for each stock that considers the time it takes to react to the negative tone implied in its own news.