We investigate how the loss of informative salient signals in financial markets influences stock return volatility, using the 2024 intraday disclosure reform of the mainland China-Hong Kong Stock Connect program as a natural experiment. The reform eliminated the real-time disclosure of northbound capital (NC) flows on trading platforms, rendering NC trading information invisible to Chinese investors during market hours. We find that the removal of NC signals induces increased investor belief dispersion and intensifies informed trading, thereby amplifying intraday volatility in NC-eligible stocks. Moreover, this effect is more pronounced for stocks with higher investor attention, indicating that attentive investors suffer stronger anchor loss when NC signals disappear. In contrast, lottery-type stocks and stocks with alternative NC trading clues exhibit weaker volatility responses, since the presence of strong alternative signals reduces the effect of NC signal loss. These findings highlight the informational role of insightful salient signals in stabilizing stock returns.

This paper investigates the gambling preference of Chinese investors in the convertible bond (CB) market through a natural experiment—the 2018 amendment of Article 142 of the Company Law. Utilizing CB issuance data from 2016 to 2023, we employ a cohort difference-in-difference approach and find a 4% to 7% increase in IPO premiums for high-repurchase-expectation CBs across various measures. This significant increase indicates that the legal revision reshapes investors’ expectation and adjusts their valuation of CBs. Furthermore, the event-study analysis reveals the escalating impact of legal revision, driven by the herding behavior of gambling investors.

Motivated by the growing importance of the Chinese domestic economy for the global economic condition, we test whether the consumption risk of China matters for the cross-section of U.S. equity returns. We find that the two-factor international assetpricing model with both U.S. and Chinese consumption risk explains 40% of the crosssectional variation in U.S. equity returns. We also find a sizable risk premium of 7.08% per annum. This finding is robust to different estimation approaches, portfolio groups, controlling for other equity factors, and using individual equities. For economic mechanism, we find that it is the discount rate channel that is related to investors’ risk aversion, sentiment, and economic uncertainty through which Chinese consumption matters for the U.S. equity returns. Also, the result is not entirely driven by Chinese investors participating in the U.S. Overall, we present equity market-based novel evidence of the importance of Chinese macro fundamentals for the U.S.

We propose a new joint model of intraday returns and durations to study the dynamics of several Chinese stocks. We include IBM from the U.S. market for comparison purposes. Flexible innovation distributions are used for durations and returns, and the total variance of returns is decomposed into different volatility components associated with different transaction horizons. Our new model strongly dominates existing specifications in the literature. The conditional hazard functions are non-monotonic and there is strong evidence for different volatility components. Although diurnal patterns, volatility components, and market microstructure implications are similar across the markets, there are interesting differences. Durations for lightly traded Chinese stocks tend to carry more information than heavily traded stocks. Chinese investors usually have longer investment horizons, which may be explained by the specific trading rules in China.

This paper investigates the dynamic and long-run relationships between monetary policy and asset prices in China using monthly data from June 2005 to September 2010. Johansen’s cointegration approach based on vector autoregression (VAR) and Granger causality test are used to identify the long-run relationships and directions of causality between asset prices and monetary variables. Empirical results show that monetary policies have little immediate effect on asset prices, suggesting that Chinese investors may be ‘irrational’ and ‘speculative’. Instead of running away from the market, investors rush to buy houses or shares whenever tightening monetary actions are taken. Such seemingly irrational and speculative behavior can be explained by various social and economic factors, including lack of investment channels, market imperfections, cultural traditions, urbanization and demographic changes. The results have two important policy implications. First, China’s central bank has not used and should not use interest rate alone to maintain macro-economic stability. Second, both monetary and non-monetary policies should be deployed when asset bubbles loom large to avoid devastating consequences when they burst.

This paper investigates the dynamic and long-run relationships between monetary policy and asset prices in China using monthly data from June 2005 to September 2010. Johansen’s cointegration approach based on vector autoregression (VAR) and Granger causality test are used to identify the long-run relationships and directions of causality between asset prices and monetary variables. Empirical results show that monetary policies have little immediate effect on asset prices, suggesting that Chinese investors may be ‘irrational’ and ‘speculative’. Instead of running away from the market, investors rush to buy houses or shares whenever tightening monetary actions are taken. Such seemingly irrational and speculative behavior can be explained by various social and economic factors, including lack of investment channels, market imperfections, cultural traditions, urbanization and demographic changes. The results have two important policy implications. First, China’s central bank has not used and should not use interest rate alone to maintain macro-economic stability. Second, both monetary and non-monetary policies should be deployed when asset bubbles loom large to avoid devastating consequences when they burst.

This paper investigates the dynamic and long-run relationships between monetary policy and asset prices in China using monthly data from June 2005 to September 2010. Johansen’s cointegration approach based on vector autoregression (VAR) and Granger causality test are used to identify the long-run relationships and directions of causality between asset prices and monetary variables. Empirical results show that monetary policies have little immediate effect on asset prices, suggesting that Chinese investors may be ‘irrational’ and ‘speculative’. Instead of running away from the market, investors rush to buy houses or shares whenever tightening monetary actions are taken. Such seemingly irrational and speculative behavior can be explained by various social and economic factors, including lack of investment channels, market imperfections, cultural traditions, urbanization and demographic changes. The results have two important policy implications. First, China’s central bank has not used and should not use interest rate alone to maintain macro-economic stability. Second, both monetary and non-monetary policies should be deployed when asset bubbles loom large to avoid devastating consequences when they burst.

This paper investigates the dynamic and long-run relationships between monetary policy and asset prices in China using monthly data from June 2005 to September 2010. Johansen?s cointegration approach based on vector autoregression (VAR) and Granger causality test are used to identify the long-run relationships and directions of causality between asset prices and monetary variables. Empirical results show that monetary policies have little immediate effect on asset prices, suggesting that Chinese investors may be ?irrational? and ?speculative?. Instead of running away from the market, investors rush to buy houses or shares whenever tightening monetary actions are taken. Such seemingly irrational and speculative behavior can be explained by various social and economic factors, including lack of investment channels, market imperfections, cultural traditions, urbanization and demographic changes. The results have two important policy implications. First, China?s central bank has not used and should not use interest rate alone to maintain macro-economic stability. Second, both monetary and non-monetary policies should be deployed when asset bubbles loom large to avoid devastating consequences when they burst.

This study examines for evidence of peer effects in the trading decisions of individual investors from Mainland China, a country whose cultural and social structures are vastly different from those of Western countries. Cultural differences, as widely documented, play a significant role in social interactions and word-of-mouth behavior. In contrast to U.S. studies, we find robust evidence that the trading decisions of Chinese investors are influenced, via word-ofmouth, by those of their peers who maintain brokerage accounts at the same branch, but not by those whose accounts are maintained at another branch located in the same city.

This paper investigates the potential benefits of international diversification with short selling constraints from the perspective of Chinese investors. Based on a stream of time-rolling realized portfolios, we show that Chinese investors can gain substantially from international investments. In particular, the expected portfolio returns as well as the risk-adjusted returns can be greatly enhanced by diversifying over emerging markets, and the portfolio risk can be largely reduced by investing in developed markets in comparison with purely domestic investments. The results are robust when the out-of-sample tests are employed and when investors start with a more mean-variance efficient domestic portfolio. In addition, our analysis illustrates that optimal portfolio weights vary significantly over time due to fluctuations in the correlations among international markets, suggesting that international portfolios need to be rebalanced frequently in order to generate the greatest possible diversification benefits.