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The real value of China’s stock market

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  • Carpenter, Jennifer N.
  • Lu, Fangzhou
  • Whitelaw, Robert F.

Abstract

What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among privately owned firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for state-owned enterprises fell below that of privately owned firms after the postcrisis stimulus, perhaps reflecting unpredictable subsidies and state-directed investment policy. Finally, evidence from realized returns suggests Chinese firms face a higher cost of equity capital than US firms.

Suggested Citation

  • Carpenter, Jennifer N. & Lu, Fangzhou & Whitelaw, Robert F., 2021. "The real value of China’s stock market," Journal of Financial Economics, Elsevier, vol. 139(3), pages 679-696.
    • Handle: RePEc:eee:jfinec:v:139:y:2021:i:3:p:679-696
    DOI: 10.1016/j.jfineco.2020.08.012
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    More about this item

    Keywords

    Capital allocation; Price informativeness; Market integration; Global investing;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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