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Foreign Ownership Restrictions and Market Segmentation in China's Stock Markets

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Author Info

  • Chen, G M
  • Lee, Bong-Soo
  • Rui, Oliver

Abstract

We study market segmentation in China's stock markets, in which local firms issue two classes of shares: class A shares available only to Chinese citizens and class B shares available only to foreign citizens. Significant stock price discounts are documented for class B shares. We find that the price difference is primarily due to illiquid B-share markets. Relatively illiquid B-share stocks have a higher expected return and are priced lower to compensate investors for increased trading costs. However, between the two classes of shares, B-share prices tend to move more closely with market fundamentals than do A-share prices. Therefore, we find A-share premiums rather than B-share discounts in China's markets.

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Bibliographic Info

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

Volume (Year): 24 (2001)
Issue (Month): 1 (Spring)
Pages: 133-55

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Handle: RePEc:bla:jfnres:v:24:y:2001:i:1:p:133-55

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