The Volatility of Return Revisions and Financial Statement Literacy in Emerging Markets: The Case of Cross-Listed Chinese Firms

Journal of Business Finance & Accounting, Forthcoming

Rotman School of Management Working Paper No. 2723958

Posted: 29 Jan 2016

See all articles by Jeffrey L. Callen

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Karen Lai

Monash University - Department of Accounting; Deakin University, Faculty of Business and Law, Deakin Law School, Students

Steven X. Wei

Hong Kong Polytechnic University

Date Written: January 28, 2016

Abstract

Are foreign investors in emerging markets more financial statement literate than domestic investors? If so, this conjecture implies that foreign (domestic) investors are more likely to revise their return expectations to cash flow (discount rate) news. It also implies that cash flow news and discount rate news are likely to be uncorrelated when evaluating return revisions by domestic investors, whereas cash flow news and discount rate news are likely to be negatively correlated when evaluating return revisions by foreign investors. The Chinese equity markets yield robust empirical results that are consistent with both hypotheses.

Keywords: variance decomposition, domestic versus foreign investors, Chinese equity markets

JEL Classification: G12, G15, M40

Suggested Citation

Callen, Jeffrey L. and Lai, Karen and Wei, Steven X., The Volatility of Return Revisions and Financial Statement Literacy in Emerging Markets: The Case of Cross-Listed Chinese Firms (January 28, 2016). Journal of Business Finance & Accounting, Forthcoming, Rotman School of Management Working Paper No. 2723958, Available at SSRN: https://ssrn.com/abstract=2723958

Jeffrey L. Callen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Karen Lai

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Deakin University, Faculty of Business and Law, Deakin Law School, Students ( email )

221 Burwood Highway
Burwood, Victoria
Australia

Steven X. Wei

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong
(852)27667056 (Phone)
(852)23309845 (Fax)

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