Digital Finance and Pricing Efficiency in China's A-share Market

Abstract

Using 37,269 firm-year observations for Chinese non-financial A-share listed firms during 2012-2023, this study investigates whether regional digital financial development changes the efficiency with which equity prices incorporate information. Stock price synchronicity (SYNCH) is adopted as the inverse proxy for pricing efficiency, while the Peking University Digital Financial Inclusion Index (DIF) is used to measure the development of digital finance at the regional level. The empirical evidence shows that DIF is positively and significantly related to SYNCH after controlling for province-by-year shocks and firm listing age. In other words, greater digital financial development is associated with stronger stock return co-movement rather than a clear improvement in firm-specific pricing. The heterogeneity tests further indicate that this effect is concentrated among large-cap firms. These results support a passive-indexing interpretation: as digital financial tools and index products expand, large constituent stocks become more exposed to common fund-flow and information shocks. The findings imply that easier access to financial information does not automatically enhance market efficiency; the final effect depends on how information is distributed and how trading is organized.