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Cross-Market Trading in China’s Large State-Owned Commercial Banks

24 Pages Posted: 17 Oct 2010  

Richard C. K. Burdekin

Claremont McKenna College - Robert Day School of Economics and Finance

Yang Yang

Macroeconomic Advisers, LLC

Date Written: September 1, 2010

Abstract

This paper examines the differential between the share prices of China’s large state-owned commercial banks traded in Shanghai vs. prices observed in Hong Kong. We find a significant role for investor sentiment, as reflected in relative price-earnings ratios, in explaining these price differentials for all four banks. The share price in Shanghai tends to move ahead of the share price in Hong Kong when rising local sentiment makes investors in Shanghai willing to pay more for the same predicted earnings. We also identify co-movement in relative bank price-earnings ratios across the two markets plus some co-determination in the price differentials.

Keywords: China, Shanghai, Hong Kong, commercial banks, share prices, sentiment

JEL Classification: G14, G15

Suggested Citation

Burdekin, Richard C. K. and Yang, Yang, Cross-Market Trading in China’s Large State-Owned Commercial Banks (September 1, 2010). Robert Day School of Economics and Finance Research Paper No. 2010-05. Available at SSRN: https://ssrn.com/abstract=1692913 or http://dx.doi.org/10.2139/ssrn.1692913

Richard C. K. Burdekin (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Yang Yang

Macroeconomic Advisers, LLC

Washington, DC
United States

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