On the Chinese B-share price discount puzzle: Some new evidence
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chui, Andy C W & Kwok, Chuck C Y, 1998. "Cross-Autocorrelation between A Shares and B Shares in the Chinese Stock Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(3), pages 333-53, Fall.
- Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-99, September.
- Bailey, Warren & Chung, Y. Peter & Kang, Jun-koo, 1999. "Foreign Ownership Restrictions and Equity Price Premiums: What Drives the Demand for Cross-Border Investments?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(04), pages 489-511, December.
- Su, Dongwei & Fleisher, Belton M., 1999.
"Why does return volatility differ in Chinese stock markets?,"
Pacific-Basin Finance Journal,
Elsevier, vol. 7(5), pages 557-586, December.
- Belton Fleisher & Dongwei Su, 1998. "Why Does Return Volatility Differ in Chinese Stock Markets?," Working Papers 98-03, Ohio State University, Department of Economics.
- John G. Fernald & John H. Rogers, 2000.
"Puzzles in the Chinese stock market,"
Working Paper Series
WP-00-13, Federal Reserve Bank of Chicago.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Sun, Qian & Tong, Wilson H. S., 2000. "The effect of market segmentation on stock prices: The China syndrome," Journal of Banking & Finance, Elsevier, vol. 24(12), pages 1875-1902, December.
- Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
- 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 1019-57.
- Jian Yang, 2003. "Market Segmentation and Information Asymmetry in Chinese Stock Markets: A VAR Analysis," The Financial Review, Eastern Finance Association, vol. 38(4), pages 591-609, November.
- Bailey, Warren & Jagtiani, Julapa, 1994. "Foreign ownership restrictions and stock prices in the Thai capital market," Journal of Financial Economics, Elsevier, vol. 36(1), pages 57-87, August.
- Chen, G M & Lee, Bong-Soo & Rui, Oliver, 2001. "Foreign Ownership Restrictions and Market Segmentation in China's Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(1), pages 133-55, Spring.
- Brennan, Michael J. & Subrahmanyam, Avanidhar, 1996. "Market microstructure and asset pricing: On the compensation for illiquidity in stock returns," Journal of Financial Economics, Elsevier, vol. 41(3), pages 441-464, July.
- Kalok Chan & Albert J. Menkveld & Zhishu Yang, 2008. "Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount," Journal of Finance, American Finance Association, vol. 63(1), pages 159-196, 02.
- Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
- Darrat, Ali F. & Zhong, Maosen, 2005. "Equity market linkage and multinational trade accords: The case of NAFTA," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 793-817, September.
- David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
- Domowitz, Ian & Glen, Jack & Madhavan, Ananth, 1997. " Market Segmentation and Stock Prices: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 52(3), pages 1059-85, July.
When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:63:y:2010:i:8:p:895-902. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.