The bonding hypothesis and the home market liquidity of Chinese cross-listed stocks

Abstract

We investigate liquidity, transaction costs and information content in trades of mainland Chinese stocks that are cross-listed on the Hong Kong stock market. Most majority of cross-listed Chinese stocks issue shares in the Hong Kong market and domestic shares at the same time, or even issue the former prior to the issuance of the latter. We find supportive evidence of the bonding hypothesis. Cross-listed stocks are more liquid, have lower transaction costs and less information content in trades than those non-cross-listed. These improvements remain significant after controlling for known liquidity determinants.