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Segmentation of the A- and B-Share Chinese Equity Markets

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  • Fung, Hung-Gay
  • Lee, Wai
  • Leung, Wai Kin
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    Abstract

    In this study we use the latent variable asset pricing model to examine the pricing of A and B shares in the China stock markets. The hypothesis tested is whether markets for the A and the B shares of the same companies are segmented. We document only one latent variable in both A and B share markets. However, the latent risk premiums for the A and B shares are only weakly correlated, indicating the two-tier markets are loosely related. The weak correlation implies the two markets reflect different fundamental forces. Additional analysis demonstrates that the Shanghai market responds to the Shenzhen market rather than the other way around.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 23 (2000)
    Issue (Month): 2 (Summer)
    Pages: 179-95

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    Handle: RePEc:bla:jfnres:v:23:y:2000:i:2:p:179-95

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Chien-Liang Chiu & Mingchih Lee & Chun-Da Chen, 2005. "Removal of an investment restriction: the 'B' share experience from China's stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 15(4), pages 273-285.
    2. Sami, Heibatollah & Zhou, Haiyan, 2004. "A comparison of value relevance of accounting information in different segments of the Chinese stock market," The International Journal of Accounting, Elsevier, vol. 39(4), pages 403-427.
    3. Bai, Jushan & Ando, Tomohiro, 2013. "Multifactor asset pricing with a large number of observable risk factors and unobservable common and group-specific factors," MPRA Paper 52785, University Library of Munich, Germany, revised Dec 2013.
    4. Chen, Gongmeng & Firth, Michael & Kim, Jeong-Bon, 2004. "IPO underpricing in China's new stock markets," Journal of Multinational Financial Management, Elsevier, vol. 14(3), pages 283-302, July.
    5. Odegaard, Bernt Arne, 2007. "Price differences between equity classes. Corporate control, foreign ownership or liquidity?," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3621-3645, December.
    6. Gao, Y. & Tse, Y. K., 2004. "Market segmentation and information values of earnings announcements: Some empirical evidence from an event study on the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 455-474.
    7. Wang, Zijun & Kutan, Ali M. & Yang, Jian, 2005. "Information flows within and across sectors in Chinese stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 767-780, September.
    8. Yuenan Wang & Amalia Di Iorio, 2007. "The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market," Review of Quantitative Finance and Accounting, Springer, vol. 29(2), pages 181-203, August.
    9. Demirer, RIza & Kutan, Ali M., 2006. "Does herding behavior exist in Chinese stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 123-142, April.
    10. Chan, Kam C. & Fung, Hung-Gay & Thapa, Samanta, 2007. "China financial research: A review and synthesis," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 416-428.
    11. Wang, Steven Shuye & Jiang, Li, 2004. "Location of trade, ownership restrictions, and market illiquidity: Examining Chinese A- and H-shares," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1273-1297, June.
    12. He, Yan & Wang, Junbo & Wu, Chunchi, 2013. "Domestic versus foreign equity shares: Which are more costly to trade in the Chinese market?," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 465-481.
    13. Wang, Ping & Liu, Aying & Wang, Peijie, 2004. "Return and risk interactions in Chinese stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(4), pages 367-383, October.
    14. Wang, Yuenan & Iorio, Amalia Di, 2007. "Are the China-related stock markets segmented with both world and regional stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 277-290, July.

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