The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

ABSTRACT: The circumstances surrounding the outbreak of the COVID-19 pandemic have generated substantial international political strain as governments attempt to mitigate the widespread associated social and economic repercussions. One theory has focused on the potential for Chinese informational asymmetry. Using Chinese financial market data, we attempt to establish the scale and direction of information flows during multiple distinct phases of the development of the pandemic. Two specific results are identified. Firstly, the majority of domestically-traded Chinese stocks present evidence of significant information flows at a far earlier stage than internationally-traded comparatives, suggesting that domestic investors recognised the dangers associated with COVID-19 far in advance of the rest of the world. One potential explanation surrounds the view that the severity of domestically-reported Chinese news was not appropriately recognised by international investors. Secondly, while evidence of safe-haven and flight-to-safety behaviour is evident throughout traditional energy and precious metal markets, cryptocurrencies became informationally-synchronised with Chinese equity markets, indicating their use as an investor safe-haven. This is a particularly concerning outcome for international policy-maker and regulatory authorities due to the fragility of these developing markets. Highlights • Analysing Chinese markets we attempt to establish the scale and direction of information flows during the COVID-19 pandemic• Results suggest that Chinese stocks present significant information flows far earlier than internationally counterparts• The immediacy and severity of early news release appears to have not been appropriately recognised by international investors• Evidence of flight-to-safety behaviour is evident throughout traditional energy and precious metal markets.• Cryptocurrencies appear informationally-synchronised with Chinese equities, indicating their use as an investment safe-haven

SUBMITTER: Corbet S 

PROVIDER: S-EPMC7486623 | biostudies-literature | 2020 Sep

REPOSITORIES: biostudies-literature