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Capital account reform and short- and long-run stock price leadership

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Listed:
  • Charlie X. Cai
  • Paul B. McGuinness
  • Qi Zhang

Abstract

This paper studies the effect of capital account liberalization policies on the price discovery of cross-listings in Chinese stocks. We construct a non-linear causality framework that decomposes short- and long-run dimensions of price leadership. Our analysis shows that capital account liberalization has had a profound effect on long-run A- and H-price leadership traits. Specifically, increased inward capital movement from Qualified Foreign Institutional Investors strengthens long-term leadership in the mainland A-market. Similarly, increased capital outflow from the Chinese mainland galvanizes long-term price discovery processes in the Hong Kong H-market. We thus offer strong evidence that capital account liberalization promotes stock market efficiency in the long-run. The present study's empirical account also suggests that such capital flows inhibit short-term lead-lag effects.

Suggested Citation

  • Charlie X. Cai & Paul B. McGuinness & Qi Zhang, 2017. "Capital account reform and short- and long-run stock price leadership," The European Journal of Finance, Taylor & Francis Journals, vol. 23(10), pages 916-945, August.
    • Handle: RePEc:taf:eurjfi:v:23:y:2017:i:10:p:916-945
    DOI: 10.1080/1351847X.2015.1105272
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