This paper examines whether China’s switch back and forth from fixed to floating exchange rates in 2005 and 2008 changed the contribution to stock price discovery by foreign and domestic investors. During that time, mainland investors could only trade the RMB-denominated A-shares in the domestic Shanghai and Shenzhen markets, while the dual-listed HKD-denominated H-shares were available only to overseas investors. Using intraday data on overlapping trading hours, we find that the switch from a fixed rate to managed floating in July 2005 increased the H-shares’ contribution to price discovery; while the exchange rate regime reversal in July 2008 allowed the domestic stocks to regain their dominance in information shares. These results imply that, in a market subject to restrictions on capital flows, a flexible exchange rate regime increases the propensity of investors to trade foreign-issued stocks to speculate on the RMB exchange rate, which raises overseas investors’ contribution to price discovery.

This study is the first to examine China’s crude oil options market. Using high-frequency data and three different price discovery measures, we conduct a rigorous analysis and find that after its first 8 months of operation, China’s crude oil options market has already played an important role in price discovery. Factors such as volume, volatility, and speculation can impact its price discovery ability. We also find a unique phenomenon in China’s crude oil derivatives market, namely that speculative activity mainly occurs in the futures market and adds to the price discovery of the futures market rather than to the options

This paper investigates information transmission and price discovery mechanisms in informationally linked and non-synchronous trading markets within the multivariate generalized autoregressive conditional heteroskedasticity framework. Using daily data for copper and soybean contracts from the Chinese futures and spot markets, as well as the London Metal Exchange (LME) and Chicago Board of Trade (CBOT) futures markets, we show that there are asymmetric lead-lag relationships between any two of the three markets. We also find that the volatilities spill over from one market to another for both cases of copper and soybeans. However, the copper and soybean markets exhibit quite different patterns of information transmission. Further, we highlight the remarkable role of the Chinese futures markets in the price formation process, though the LME/CBOT futures markets are the main driving force in price discovery.

We evaluate the efficacy of price discovery in the round-the-clock U.S. Treasury market. Using a comprehensive intraday database, we explore informational role of trades over the 24-hour day. We find that information asymmetry is generally highest in the preopen period and lowest in the postclose period. Information asymmetry in the overnight period is comparable to that in the regular trading period. However, on days with macroeconomic announcements, information asymmetry peaks shortly after the news release at 8:30. Moreover, information asymmetry is higher on Monday morning and higher immediately before than after the open of U.S. Treasury futures trading. Although volume is low after hours and trading cost is relatively high, overnight trading generates significant price discovery. Results suggest that overnight trading activity is an important part of the Treasury price discovery process.

In this paper we present a critical viewpoint on interpretation of one of the most important innovation in the recent world economy. This is erivatives’ market, the options segment in particular. The standard options such as plain vanilla, nonstandard exotics or hybrid options and more recent specification called credit derivatives are actively traded around the world absorbing a significant volume of cash flows. The goal of the paper is to present the misunderstanding of the core problems in this field. This is an option price discovery. The modern probability and statistics theories are applied to provide investors and institutions information regarding the cost of the investment risk and on the other hand develop a better proximity between given historical data and analytical theory. We will show bellow that critical arguments are related to the basic fundamentals of the investment sciences that unfortunately are still difficult to comprehend by theoretical researchers, supervisory organizations, and investors.

A government policy aimed at the reduction of state shares in state-owned enterprises (SOE) triggered a crash in Chinas stock market. The sustained depression and spillover even after the policy adjustments were over constitute a puzzle the so-called state-share paradox. The empirical study finds evidence in two dimensions. First, a regime switching model with an absorbing state suggests that government policy switches the regime to liquidity black holes. Second, there is no evidence of light-to-liquidity during the crash, suggesting to model the crash as an aggregate phenomenon of the whole market. To carefully match the evidence, a theoretical model is set up within the framework of market microstructure. The state-share paradox is not a simply instance of news-driven crash. The model shows that Chinas stock market has distinctive features of liquidity production and price discovery. The irregularities of a representative liquidity supporter generate an inverted-S demand curve and give rise to potential liquidity black holes. Multiple equilibria and the resulting large drop in prices arise from supply dynamics of short-run investors, who buy the stock from the primary market liquidate their long positions in the secondary market. This study contributes a rational panics hypothesis to the literature. The rational panics hypothesis is neither an rational model with noise traders, nor a standard rational expectation model under the asymmetric information framework. It is based on homogeneous agents with incomplete information, and is consistent with the evidence of absorbing regime switching and the recent literature on state-dependent preference. Our findings have larger implications for ine¢ ciency of Chinas stock market.

We analyze the possible effect of price limit to informed traders’ behavior and propose three hypotheses caused by price limit. Then comprehensively using the event study method and comparative grouping method, we empirically exams the performance of price limit in China’s stock market. Our finding is that price limit policy will bring significant effect to the trading behavior of insiders, which means price limit policy will impede the fulfillment of insiders’ trading activities and delay equilibrium price discovery.

A government policy aimed at the reduction of state shares in state-owned enterprises (SOE) triggered a crash in the Chinese stock market. The sustained depression and spillover even after the policy adjustments were over constitute a puzzle---the so called "state-share paradox". The empirical study finds evidence in two dimensions. First, a regime switching model with an absorbing state suggests that government policy switches the regime to liquidity black holes. Second, there is no evidence of flight-to-liquidity during the crash, suggesting to model the crash as an aggregate phenomenon of the whole market. To carefully match the evidence, a theoretical model is set up within the framework of market microstructure. The model shows that the Chinese stock market has distinctive features of liquidity production and price discovery. The irregularities generate an inverted-S demand curve, gives rise to potential liquidity black holes, and are key features to explain the state-share paradox. This study contributes a rational panics hypothesis to the literature. The rational panics hypothesis is neither a herding model with or without behavioral assumptions, nor a standard rational expectation model under the asymmetric information framework. It is based on homogeneous agents with incomplete information, and is consistent with the evidence of absorbing regime switching and the recent literature on state-dependent preference. Our findings have larger implications for theoretical modeling and policy design.

In August 2000 the Singapore Stock Exchange introduced a pre-trading routine that allowed brokers to place orders into the Exchange’s computerized order matching system for a period of 30 minutes prior to market opening. A post-market trading routine was also introduced allowing for a final order matching and trade execution to occur five minutes after market close. This study investigates the impact of these changes on volatility and the price discovery process. The pre-trading session significantly reduced opening stock market volatility while the post-trading session increased volatility prior to close. A GARCH (1,1) model remains the most appropriate model for capturing the characteristics of the intra-day stock price movements in both before and after periods.