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Asset Pricing in A Segmented Emerging Market

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Abstract

This paper investigates the effect of market segmentation on stock prices and returns in emerging Chinese markets. Under the assumption of infinite investment horizon and representative consumer, I formulate an Intertemporal Capital Asset Pricing Model (ICAPM) with restrictions on share ownership. The model posits that cross-section variations in the average excess returns between domestic A -and foreign B- shares depend on systematic risks as measured by shares' own market betas and betas with respect to the international equity markets. After correcting for errors-in-variable problem, I obtain econometric results consistent with the empirical predictions of ICAPM.

Suggested Citation

  • Dongwei Su, 2000. "Asset Pricing in A Segmented Emerging Market," Journal of Applied Economics, Universidad del CEMA, vol. 3, pages 387-412, November.
  • Handle: RePEc:cem:jaecon:v:3:y:2000:n:2:p:387-412
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    File URL: http://www.cema.edu.ar/publicaciones/download/volume3/dongweisu.pdf
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    References listed on IDEAS

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    1. Dongweí Su, 2003. "Risk, Return and Regulation in Chinese Stock Markets," World Scientific Book Chapters,in: Chinese Stock Markets A Research Handbook, chapter 3, pages 75-122 World Scientific Publishing Co. Pte. Ltd..
    2. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
    3. Bailey, Warren, 1994. "Risk and return on China's new stock markets: Some preliminary evidence," Pacific-Basin Finance Journal, Elsevier, vol. 2(2-3), pages 243-260, May.
    4. Su, Dongwei, 1999. "Ownership Restrictions and Stock Prices: Evidence from Chinese Markets," The Financial Review, Eastern Finance Association, vol. 34(2), pages 37-56, May.
    5. Ma, Xianghai, 1996. "Capital controls, market segmentation and stock prices: Evidence from the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 219-239, July.
    6. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    7. Chan, K. C. & Chen, Nai-fu & Hsieh, David A., 1985. "An exploratory investigation of the firm size effect," Journal of Financial Economics, Elsevier, vol. 14(3), pages 451-471, September.
    8. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.
    9. Shanken, Jay, 1992. "On the Estimation of Beta-Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 1-33.
    10. Stulz, Rene M & Wasserfallen, Walter, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1019-1057.
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    Cited by:

    1. Eric Girardin & Zhenya Liu, 2003. "The Chinese Stock Market: A Casino with 'Buffer Zones'?," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(1), pages 57-70.

    More about this item

    Keywords

    asset pricing; ICAPM; market segmentation; ownership restriction; China;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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

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