The study focuses on the process of information diffusion in Chinese real estate stocks. By investigating whether and how policy reforms that occurred during 2002 to 2013 affected the process of information diffusion, this study finds there is a significant lead-lag relationship between big and small Chinese real estate stocks, generated by the gradual information diffusion. This study further discovers that this lead-lag effect is enhanced along with main policy reforms of Chinese real estate market during the full sample period, which implies the delay degree of information diffusion becomes greater over time. Therefore, policy reforms in Chinese real estate market increase friction of information diffusion. However, continuously decreasing information volatility of information diffusion suggests information environment and transparency of market have improved over time. Therefore, the results support the notion that, along with the market development, policy reforms of Chinese real estate market have brought about transparency to the market to some degree. © 2017, Universiti Malaysia Sarawak. All rights reserved.