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Beauties of the emperor: An investigation of a Chinese government bailout

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  • Chi, Yeguang
  • Li, Xiaoming

Abstract

We study the Chinese government's stock market bailout operation in 2015. We focus on the bailout's opaque nature and explore its unintended consequences in both asset prices and investor behavior. We find that: (1) the market overreacts to the bailout news under partial information, which leads to substantial mispricing until full information is revealed; (2) institutional investors possess an informational advantage over retail investors in uncovering the bailout's full scale and target stocks; (3) institutional investors react to the bailout news promptly; and (4) retail investors initially underreact to the bailout news but eventually overreact.

Suggested Citation

  • Chi, Yeguang & Li, Xiaoming, 2019. "Beauties of the emperor: An investigation of a Chinese government bailout," Journal of Financial Markets, Elsevier, vol. 44(C), pages 42-70.
    • Handle: RePEc:eee:finmar:v:44:y:2019:i:c:p:42-70
    DOI: 10.1016/j.finmar.2019.04.002
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    Cited by:

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    3. Xiao, MingFang & Cao, June & Chiang, Yao-Min, 2022. "Kiss the baby for the nurse's sake? - Guaranteeing employees' stock purchase against loss program," International Review of Financial Analysis, Elsevier, vol. 81(C).
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    5. Zhu, Minchen & Lv, Dayong & Wu, Wenfeng, 2022. "Market stabilization fund and stock price crash risk: Evidence from the post-crash period," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    6. Jin, Ling & Li, Zhisheng & Lu, Lei & Ni, Xiaoran, 2023. "Does stock market rescue affect investment efficiency in the real sector?," Journal of Financial Markets, Elsevier, vol. 65(C).
    7. Yeguang Chi & Wenyan Hao & Yifei Zhang, 2022. "Volatility model applications in China's SSE50 options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1704-1720, September.
    8. Cheng-Ben Wang & Qian Zhong, 2023. "RETRACTED ARTICLE: International market risk, monetary policy stance, and corporate financing: China’s economic recovery in the post-pandemic era," Journal of Combinatorial Optimization, Springer, vol. 46(1), pages 1-37, August.
    9. Li, Lu & Liu, Chunbo & Xu, Yongxin & Zhang, Xiaoyan & Zheng, Gaoping, 2024. "Crisis rescue via direct purchase: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 165(C).

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    More about this item

    Keywords

    Government intervention; Information transparency; Information asymmetry; Behavioral bias; Investor welfare;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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