Capital Account Reform and Short- and Long-Run Stock Price Leadership
European Journal of Finance, Forthcoming
45 Pages Posted: 6 Oct 2015 Last revised: 12 Oct 2015
Date Written: July 15, 2015
This paper studies the effect of capital account liberalization policies on the price discovery of cross-listings in Chinese stocks. We construct a non-linear causality framework that decomposes short- and long-run dimensions of price leadership. Our analysis shows that capital account liberalization has had a profound effect on long-run A- and H- price leadership traits. Specifically, increased inward capital movement from Qualified Foreign Institutional Investors (QFIIs) strengthens long-term leadership in the mainland A- market. Similarly, increased capital outflow from the Chinese mainland galvanizes long-term price discovery processes in the Hong Kong H- market. We thus offer strong evidence that capital account liberalization promotes stock market efficiency in the long-run. The present study’s empirical account also suggests that such capital flows inhibit short-term lead-lag effects.
Keywords: Capital account liberalization, A- and H- share cross listings, short- and long-run price leadership
JEL Classification: G01, G15, G18
Suggested Citation: Suggested Citation