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On the Chinese B-share price discount puzzle: Some new evidence

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  • Darrat, Ali F.
  • Gilley, Otis
  • Wu, Yanhui
  • Zhong, Maosen

Abstract

Since February 2001, the Chinese Securities Regulatory Commission allowed domestic trade in foreign-currency denominated shares (B-shares) whose trade was originally restricted to foreign investors. We investigate possible effects of lifting the ownership restriction on the B-share discounts and explore why the discount persists even after removing the restriction. The discount is the percentage by which the B-shares are priced less than the otherwise identical Chinese-currency denominated shares held by domestic investors (A-shares). The results suggest that prices in the B- and A-share markets are closely linked over the long-run and that this equilibrium relationship strengthened in the post-lifting period. Our results further rule out information asymmetry as a reason for the continuation of the discount and support instead the importance of firm size and relative supply of the B-shares.

Suggested Citation

  • Darrat, Ali F. & Gilley, Otis & Wu, Yanhui & Zhong, Maosen, 2010. "On the Chinese B-share price discount puzzle: Some new evidence," Journal of Business Research, Elsevier, vol. 63(8), pages 895-902, August.
  • Handle: RePEc:eee:jbrese:v:63:y:2010:i:8:p:895-902
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    References listed on IDEAS

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    Cited by:

    1. He, Hongbo & Chen, Shou & Yao, Shujie & Ou, Jinghua, 2014. "Financial liberalisation and international market interdependence: Evidence from China’s stock market in the post-WTO accession period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 434-444.
    2. Darrat, Ali F. & Gilley, Otis W. & Li, Bin & Wu, Yanhui, 2011. "Revisiting the risk/return relations in the Asian Pacific markets: New evidence from alternative models," Journal of Business Research, Elsevier, vol. 64(2), pages 199-206, February.

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