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Float, Speculation And Stock Price: Evidence From The Split Share Structure Reform In China

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  • CHUAN-YANG HWANG

    (Nanyang Business School, Nanyang Technological University, S3-01B-46 Nanyang Avenue, Singapore 639798, Singapore)

  • SHAOJUN ZHANG

    (#x2020;School of Accounting and Finance, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong)

  • YANJIAN ZHU

    (#x2021;College of Economics, Zhejiang University, 38 Zheda Road, Hangzhou 310027, China)

Abstract

The Split Share Structure Reform in China offers a unique opportunity to test whether the supply of tradable shares (i.e., float) has a significant impact on the degree of speculation. After firms completed the reform, their float increased by 31% on average, while turnover and trading volume also increased substantially. We use information from firms’ reform plan to derive an estimate of the price premium of tradable shares over non-tradable shares before the reform and find that, after controlling for differences in liquidity and profitability, the price premium is significantly related to proxies for the level of speculative trading in tradable shares. Moreover, firms that were highly speculated before the reform had significantly smaller increase in turnover and trading volume than firms that were less speculated. Overall, our evidence confirms that there is a significant speculative component in the market price of tradable shares in China and a large increase in float dampens speculative trading.

Suggested Citation

  • Chuan-Yang Hwang & Shaojun Zhang & Yanjian Zhu, 2018. "Float, Speculation And Stock Price: Evidence From The Split Share Structure Reform In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(03), pages 701-729, June.
    • Handle: RePEc:wsi:serxxx:v:63:y:2018:i:03:n:s0217590816500260
    DOI: 10.1142/S0217590816500260
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