Red Chips or H Shares: which process information faster among China-Backed Securities?

Abstract

This study examines information flows among China-backed securities, which are H shares, red chips, Shanghai and Shenzhen listed common shares. We find that an exponential generalized autoregressive conditional heteroscedasticity in mean (EGARCH-M) model appears to describe adequately the return process of the China-backed securities. Our empirical findings show that both H shares and red chips (which are listed in Hong Kong) are more sensitive to "good" news than "bad" news, while stocks listed in China are more sensitive to "bad" news than "good" news Using a multivariate EGARCH-M model, we have found significant return and volatility spillover effects among the China-backed securities. Our study indicates that the red chips appear to spread information to other China-backed markets directly or indirectly. The results imply that the red chip market processes information faster than the other markets.