Is the Chinese Stock Market Really Different-Evidence from Stock Splits in the U.S. and China

We compare and contrast the Chinese and the U.S. stock markets by analyzing stock price reactions around stock split announcements. Both markets exhibit positive initial stock price reactions on split announcements and positive post-split return drift in the initial 3 months. In the U.S., the positive drift continues for 12 months, even in the post1998 period, decades after the anomaly was identified in the academic literature. In contrast, the price run-up in China stops after 3 months and in some cases it fully reverses after 12 months. However, after excluding a group of suspicious split announcements, the Chinese market exhibits positive continuation of post-announcement drift in the following 12 months, similar in magnitude to the U.S. sample. Using complete account level trading data from the Shanghai Stock Exchange, we find that retail investors are net buyers after split announcements, while mutual funds and institutional investors are net sellers. This is especially the case for the splits that are likely to be manipulative, which is consistent with the idea that these events are used to target retail investors.