What If Trading Location is Different from Business Location? Evidence from the Jardine Group

Abstract

This paper examines how the information flow and trading activity of the Jardine group of companies are affected after they are delisted from Hong Kong. An interesting aspect is that while the trading activity of the five companies in the Group is moved to Singapore, the core business remains in Hong Kong/China. As a result of the delisting, there are fewer retail investors and less security analyst coverage after the delisting. A member company of the Group that continued its listing in Hong Kong did not experience similar change in investor base. We find the evidence consistent with an investor clientele effect. After the delisting, the Jardine stocks become more like Singapore companies rather than Hong Kong companies. First, their stock returns and trading volume become more (less) sensitive to the Singapore (Hong Kong) market. Second, the Jardine companies have intraday patterns of return volatility and bid-ask spread are similar to those of Singapore-based companies, suggesting that they behave more like Singapore stocks and their intraday behavior is driven by market sentiments in Singapore. Further analysis of the trading activity of Jardine stocks indicate that Jardine stocks continue to be influenced by (public) information flows in Hong Kong. Although there is little barrier for investors to trade in Hong Kong or Singapore and information ought to travel quickly in the financial markets in the presence of modern communication technology, we find that once the Jardine companies move to Singapore, there is a new investor clientele. Our findings illustrate the importance of proximity of trading location to core business in the determination of investor interests and their trading behavior.