Foreign Ownership Restrictions and Market Segmentation in China's Stock Markets

Posted: 17 Mar 2000

See all articles by Gong-meng Chen

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance

Bong-Soo Lee

Korea Advanced Institute of Science and Technology (KAIST)

Oliver M. Rui

China Europe International Business School (CEIBS)

Abstract

We study market segmentation in China's stock markets, in which local firms issue two classes of shares: class A shares available only to Chinese citizens and class B shares available only to foreign citizens. Significant stock price discounts are documented for class B shares. We find that the price difference is primarily due to illiquid B-share markets. Relatively illiquid B-share stocks have a higher expected return and are priced lower to compensate investors for increased trading costs. However, between the two classes of shares, B-share prices tend to move more closely with market fundamentals than A-share prices. Therefore, we find A-share premia rather than B-share discounts in China's markets.

JEL Classification: G15

Suggested Citation

Lee, Bong-Soo and Lee, Bong-Soo and Rui, Oliver M., Foreign Ownership Restrictions and Market Segmentation in China's Stock Markets. Available at SSRN: https://ssrn.com/abstract=209349

Bong-Soo Lee

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Bong-Soo Lee (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST)

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

Oliver M. Rui

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
3,189
PlumX Metrics