Market segmentation and price differentials in Chinese stock market

• Main Author: 卓莉雯
• Other Authors: 董澍琦
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/75747430475451152919

碩士 === 國立中興大學 === 財務金融研究所 === 92 === Abstract This purpose of this paper is to study the effect of market segmentation in the Chinese stock market due to foreign ownership restrictions. On the 19th February 2001, it was officially confirmed that domestic investors would be allowed to trade in B shares. Thus, the markets were reshuffled from strict segmentation to partial segmentation. First of all, we investigate whether if a long-term equilibrium exists between A and B shares. Empirical results indicate that before the policy change, there is no cointegration between A and B shares. But after the policy change, the information diffusion between these two stock markets become more frequently. Then, in order to find the source of the price differences between these two classes of shares, we consider six hypotheses that may explain the price differences. Each hypothesis is characterized by its empirical implications. Our main conclusion is that before the policy change, relatively illiquid B share stocks have a higher expected return and are priced lower to compensate investors for increased trading costs. After the policy change, the relatively illiquid B share stocks in the Shanghai stock exchange and the different risk hypothesis in the Shenzhen stock exchange are the primary theoretical factors. Our results indicate that it has been a success of the Chinese government to lift restrictions. We find that after the policy change, the relationship between A shares and B shares become more close；the A share price premium has both decreased, and become stationary. From the cross-sectional analysis, we find that illiquid trading of B shares, and the highly risk tolerant of Chinese investors are significant determinants in explaining the price premium on A shares.