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Market liberalization within a country

  • Sun, Qian
  • Tong, Wilson H.S.
  • Yan, Yuxing
Registered author(s):

    China's B-share market, which used to be restricted to foreign investors, was partially opened up in February 2001 to Chinese local investors. We take this as a controlled experiment in cross-border trading on a small scale. We find mild but positive effects on the B-share market, with higher volumes, lower levels of volatility, lower bid-ask spreads and more liquidity after liberalization. Between A- and B-shares, price disparities narrowed; the correlation and the co-integration relationships became stronger; and the flow of information became more balanced. More new individual investors entered into the B-share market without crowding out existing institutional investors. Even though the liberalization measure is partial and one-way, it has helped to improve the quality of the B-share market, and our results lend no support to the popular claim that liberalization does nothing but help the existing foreign shareholders to cash out.

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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 1 (January)
    Pages: 18-41

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    Handle: RePEc:eee:empfin:v:16:y:2009:i:1:p:18-41
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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