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Trading imbalances and the law of one price

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  • Seasholes, Mark S.
  • Liu, Clark

Abstract

We study trading and prices of Chinese (mainland)/Hong Kong dual-listed shares. Relative prices can diverge by a factor of two and exhibit significant variation over time. Order imbalances explain contemporaneous changes in relative prices at daily and weekly frequencies.

Suggested Citation

  • Seasholes, Mark S. & Liu, Clark, 2011. "Trading imbalances and the law of one price," Economics Letters, Elsevier, vol. 112(1), pages 132-134, July.
    • Handle: RePEc:eee:ecolet:v:112:y:2011:i:1:p:132-134
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    References listed on IDEAS

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    1. Sanford J. Grossman & Merton H. Miller, 1988. "Liquidity and Market Structure," NBER Working Papers 2641, National Bureau of Economic Research, Inc.
    2. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
    3. repec:bla:jfinan:v:43:y:1988:i:3:p:617-37 is not listed on IDEAS
    4. Abe De Jong & Leonard Rosenthal & Mathijs A. Van Dijk, 2009. "The Risk and Return of Arbitrage in Dual-Listed Companies," Review of Finance, European Finance Association, vol. 13(3), pages 495-520.
    5. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    6. Mark S. Seasholes & Terrence Hendershott, 2007. "Market Maker Inventories and Stock Prices," American Economic Review, American Economic Association, vol. 97(2), pages 210-214, May.
    7. Kenneth A. Froot & Tarun Ramadorai, 2008. "Institutional Portfolio Flows and International Investments," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 937-971, April.
    8. Froot, Kenneth A. & Dabora, Emil M., 1999. "How are stock prices affected by the location of trade?," Journal of Financial Economics, Elsevier, vol. 53(2), pages 189-216, August.
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    Cited by:

    1. Fan, Qingliang & Wang, Ting, 2017. "The impact of Shanghai–Hong Kong Stock Connect policy on A-H share price premium," Finance Research Letters, Elsevier, vol. 21(C), pages 222-227.
    2. Chan, Marc K. & Kwok, Simon, 2018. "Connecting the markets? Recent evidence on China’s capital account liberalization," Economic Modelling, Elsevier, vol. 70(C), pages 417-428.
    3. Kot, Hung Wan & Tam, Lewis H.K., 2016. "Are stock price more informative after dual-listing in emerging markets? Evidence from Hong Kong-listed Chinese companies," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 31-45.
    4. Marc K Chan, 2014. "How Well Do Prices Converge in Anticipation of Capital Control Liberalization? Evidence from a Chinese Reform," Working Paper Series 22, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    5. Pavlidis, Efthymios G. & Vasilopoulos, Kostas, 2020. "Speculative bubbles in segmented markets: Evidence from Chinese cross-listed stocks," Journal of International Money and Finance, Elsevier, vol. 109(C).
    6. Jacobs, Heiko, 2015. "What explains the dynamics of 100 anomalies?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 65-85.
    7. Narayan, Paresh Kumar & Narayan, Seema & Westerlund, Joakim, 2015. "Do order imbalances predict Chinese stock returns? New evidence from intraday data," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 136-151.

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