Market Segmentation and Stock Prices Discount in the Chinese Stock Market: Revisiting B-Share Discounts in the Chinese Stock Market
45 Pages Posted: 27 Dec 2007
Date Written: October 2007
This paper explores the determinants of B-share discounts in the Chinese stock market based on a unique regulatory change in 2001. We find that the B-share discounts declined substantially after the lifting of restrictions on foreign ownership in China, but the H-share discount remained virtually unchanged. Using the intraday data, we find that information flows from the B-share markets to the A-share markets increase significantly after the event, because domestic investors rush into the B-share markets. Using various cross-sectional analyzes, we also find that relative supply and behavior factors such as relative spread (or liquidity) and relative risk affect the discounts throughout the sample period.
Keywords: Market segmentation, Chinese stock markets, Information flow
JEL Classification: G15
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