Social Trust and Differential Reactions of Local and Foreign Investors to Public News

Chunxin Jia, Yaping Wang, Wei Xiong

NBER Working Paper No. 21075
Issued in April 2015
NBER Program(s):Asset Pricing, Corporate Finance, International Finance and Macroeconomics

This paper uses the segmented dual-class shares issued by several dozen Chinese firms---A shares to local Chinese investors and H shares to foreign investors---to compare reactions of local and foreign investors to the same public news. We find that local investors react more strongly to earnings forecasts by local analysts, while foreign investors react more strongly to forecasts of foreign analysts. This finding highlights social trust as a force driving people with different social backgrounds to react differently to the same information.

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Document Object Identifier (DOI): 10.3386/w21075

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