“How Local and Foreign Investors React to Public News” by Wei Xiong
This study uses the segmented dual-class shares of Chinese firms—A shares traded inside mainland China by local investors and H shares traded in Hong Kong by foreign investors—to analyze how local and foreign investors react to public news about the same firms. We find significant heterogeneity in their reactions. First, foreign investors react more strongly to earnings announcements. Second, foreign investors react more strongly to earnings forecast revisions made by foreign analysts, while local investors react more strongly to forecast revisions by local analysts. The first finding supports the argument that local investors are more informed about local firms, while the latter reveals that local and foreign investors agree to disagree about their interpretations of the same news—each group favoring information from sources it trusts more.