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A comparison of China Main Board and Growth Enterprise Market Board : market microstructure approach

English Abstract

We compare the market quality of the newly established, second board of the China stock market, the Growth Enterprise Market (GEM) with Main Board, and examine its impact on the Main Board from the market microstructure perspective. Several important findings emerge. Trading activities of the Main Board stocks increases after the introduction of GEM Board, suggesting the establishment of GEM is not at the expense of the Main Board but instead enhance the overall trading activities in China. We find that pricing error variances are not different in the two Boards, suggesting the market quality of the GEM is not worse than the Main Board. Additionally, GEM stocks have larger adverse selection cost component of bid-ask spread than Main Board stocks, which indicate a larger information asymmetry among traders on average in GEM stocks than those in the Main Board. Further, probability of information-based trading is larger in GEM Board, implying that price discovery process is more efficient. Interestingly we find that the 15 minute returns of Main Board stocks is strongly predictive of that of GEM stocks but the vice versa is weeker, evidencing information transmission from the Main Board to the GEM. Overall our findings suggest that the market quality of the GEM is sufficiently good to provide an important, alternative listing venue for high potential firms in China. ∗ I owe special thanks to my advisor, Dr. William Cheung Mingyan, for introducing me to the exciting field of market microstructure, without whose inspiring guidance and generous assistance this research will be impossible. My gratitude also goes to Conrad Cheng KH, Louis Lo SU, Gloria Cao WY and other friends who have had productive discussion with me about research of any stripe. Last but not least, I am deeply indebted to my beloved families who have supported me all the way up here.

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Liu, Ke Jing


Faculty of Business Administration


Department of Finance and Business Economics


M. Sc.


Stock exchanges -- China

Stocks -- China


Cheung, Ming Yan

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