We propose a behavioral signaling framework to explain the positive announcement effects of stock splits. (Retail) investors view stock splits as good news and are loss averse. Thus, a stock split can boost investors’ expectations of the firm’s growth potential and its stock price, but may also cause disproportionally larger price declines if the firm cannot meet investors’ high expectations. In equilibrium, only managers with favorable information use stock splits to signal. Empirical analyses of stock splits in China find supporting evidence for this explanation: (1) investors become more optimistic after stock splits; (2) higher split ratios are associated with stronger market reactions; (3) splitting firms have better future performance than non-splitting firms; and (4) they experience larger price declines when falling short of investors’ expectations. These findings, along with the unique institutional features of the Chinese market, help differentiate our behavioral explanation from alternative explanations within the rational framework.

This study investigates the effect of institutional cross-ownership on stock price crash risk using a sample of Chinese listed companies during the period 2011–2021. We find that institutional cross-ownership can significantly reduce stock crash risk. After a series of robustness tests, the above findings still hold. In addition, we find that the relationship is more pronounced for non-state-owned listed companies and those in less-developed regions. The study finds that the quality of corporate disclosure and financing constraints have the mediating effect. This paper provides new empirical evidence on how to reduce stock crash risk in emerging financial markets.

This paper compares Chinese firms’ IPO performance both in the short- and the long-run on domestic and overseas markets and investigates what factors determine the IPO destinations of Chinese firms. We find China’s domestic IPO market performs well over both time horizons, while some listings in the overseas market perform well in the long run except for small- and mid-cap listings in the US. Analysis based on a capital asset pricing model reveals IPO premiums and short-term returns are less affected by three common risk factors, while longer term returns are mainly driven by market fundamentals. Investigation of the drivers for Chinese firms’ IPO destinations using the binary choice model shows that firm specifics, institutional setups, and market characteristics influence the choice of IPO destinations. The prospect of a high IPO premium and strong trading in IPO shares are substantial drivers for firms to list their shares onshore. On the other hand, indicators of market size and profitability appear to have the highest predictive power for the likelihood of overseas listings, followed by firm’s ownership structure, IPO offering size and IPO underwriting costs. Institutional setups have the least predictive power for overseas listings. These results are in general robust to domestic delisting and IPO suspension events.

In this study, we adjust the hierarchical risk parity (HRP) model by introducing hierarchical information on assets to help manage portfolio risk. The adjusted HRP model with hierarchical information considers both correlation and hierarchical information. Compared with other models, the HRP model with hierarchical information has better out-of-sample robustness for simulation data. Moreover, this model achieves better out-of-sample performance using Chinese industry indices data. The results reveal that the adjusted HRP model is an efficient tool to control out-of-sample portfolio risk.

This paper investigates the impact of the COVID-19 pandemic on the volatility spillover and dependence structure among the major developed and emerging stock markets. The TVP-VAR connectedness decomposition approach and R-vine copula are implemented in this research. The results of the TVP-VAR connectedness decomposition approach reveal that the volatility spillover among the major developed and emerging stock markets has been significantly strengthened by the outbreak of the COVID-19 pandemic, although it has gradually faded over time. In addition, during the pandemic, the UK, German, French and Canadian stock markets are the spillover transmitters, while the Japanese, Chinese Hong Kong, Chinese and Indian stock markets are the receivers. It is also found that the US and Brazilian stock markets have undergone role shifts after the outbreak of the COVID-19 pandemic. The results of the R-vine copula model indicate that during the pandemic, the Canadian, French, and Chinese Hong Kong stock markets are the most important financial centre in the American, European, and Asian stock markets, respectively. Furthermore, the effect of the extreme risk contagion has been strengthened by the pandemic, particularly the downside risk contagion.

Retail investors are rising in prominence but have historically been granted little direct access to question corporate management relative to professionals like sell-side analysts and institutional investors. Because retail investors are relatively less sophisticated and can require hand-holding, we examine whether information asymmetry among investors decreases when firms answer questions from the retail investor base. We exploit ’s investor interactive platforms (IIPs), which were designed to facilitate retail investor access to management. IIPs allow questions to be anonymously and publicly posted, but answers can only pertain to previously disclosed information and there is no explicit penalty for low-quality answers. We find that IIP answers reduce bid-ask spreads, with stronger answer effects when managers respond quickly, provide direct answers, and interact with IIP users who focus on the firm. These information asymmetry reduction benefits are substantially attenuated, and in some cases non-existent, for state-owned enterprises (SOEs), who have less incentive to publicly engage with retail investors. Finally, our findings reveal that on average the marginal effects of answers are smaller than for posted questions, suggesting that while firms benefit from answering questions to lower investor integration costs, IIP activity that lowers awareness and acquisition costs is also important.

In this paper, we argue that investor sentiment is a more direct determinant for asset pricing than information, thus we propose the Sentiment Efficient Markets Hypothesis (S-EMH), complementary to the traditional Efficient Market Hypothesis (EMH), to provide a powerful instrument to interpret financial facts and anomalies inconsistent with the traditional EMH. Besides the theoretical argument, we also verify the hypothesis with a brand-new systematic index of investor sentiment, Gubasenti, derived from textual analysis on more than 200 million posts from an online Chinese stock forum. The examinations are implemented in both market-level and firm-level, and results show that investor sentiment has a significant impact on asset pricing in both levels. It demonstrates the proposed hypothesis.

We study investors’ responses to increasing tax reporting awareness and scrutiny in the crypto markets. Using novel data on retail investors’ trading, we ocument significant taxation effects on investors’ behavior and preferences for crypto-exchanges. Investors engage in tax-loss harvesting through wash trading and trading new products such as non-fungible tokens, consistent with the motive to minimize taxable events, improve tax reporting quality, and balance portfolio losses. U.S.-based traders engage in more tax-loss harvesting at the end of the year than their international peers. We further examine billions of trades on the trading books of large crypto exchanges and discover widespread tax-loss harvesting trades on U.S.-based crypto exchanges, amounting to billions of dollars in tax revenue losses for the government. Finally, we discuss ongoing anti-tax-loss harvesting proposals in anticipation of traders’ likely reactions.

The crypto and noncrypto markets used to be separated from each other. We argue that with the rapid development of stablecoins since 2018, risks are now transmitted between the crypto and noncrypto markets through stablecoins, which are both pegged to noncrypto assets and play a central role in crypto trading. Applying copula-based CoVaR approaches, we find significant risk spillovers between stablecoins and cryptocurrencies as well as between stablecoins and noncrypto markets, which could help explain the tail dependency between the crypto and noncrypto markets from 2019 to 2021. We also document that the risk spillovers through stablecoins are asymmetric—stronger in the direction from the US dollar to the crypto market than vice versa—which suggests the crypto market is re-dollarizing. Further analyses consider alternative explanations, such as the COVID-19 pandemic and institutional crypto holdings, and determine that the primary channels of risk transmission are stablecoins’ US dollar peg to the noncrypto market and their transaction-medium function in the crypto ecosystem. Our results have important implications for financial stability and shed light on the future of stablecoin regulation.

Bank bailouts are systemic in China, having been extended to nearly all distressed banks, including those with no systemic importance. This paper investigates the consequences of regulators seizing control of Baoshang Bank, the country’s first bank failure in two decades. Despite the numerous liquidity and credit provision measures immediately implemented by bank regulators, we find that the collapse of this city-level commercial bank significantly exacerbated funding conditions in the market for negotiable certificates of deposit (NCD), resulting in liquidity distress for other banks. Our empirical analysis demonstrates that the spillover of Baoshang’s collapse is disproportionately concentrated in systemically unimportant (SU) banks, owing to diminished market confidence in government bailouts of SU banks, or implicit nonguarantee. We employ a difference-in-differences approach to show that the Baoshang event had a persistent and significant effect on SU banks’ NCD issuance, increasing credit spreads by 21.9 bps and the likelihood of issuance failure by 6.3%. Our empirical framework further enables us to examine the impact of China’s long-standing guarantee of SU banks, which we find impairs price efficiency, undermines market discipline, encourages excessive risk taking, and raises equity prices.