Has the Difference in Stock Liquidity and Stock Returns Between Chinese State Owned and Privately Owned Enterprises Become Smaller?

15 Pages Posted: 27 Mar 2018

See all articles by Kuntara Pukthuanthong

Kuntara Pukthuanthong

University of Missouri, Columbia

Zhuo Qiao

University of Macau

Date Written: March 25, 2018

Abstract

This paper contrasts the stock liquidity and stock returns between Chinese state owned enterprises (SOEs) and privately owned enterprises (POEs) before and after the split-share structure reform initiated in 2005. This reform converted a huge volume of non-tradable shares into tradable shares and opened the gate to further privatization of Chinese SOEs. We find the liquidity of SOE stocks was higher than the liquidity of POE stocks before the reform, but their liquidity increased significantly to reach the same level after the reform. Since higher liquidity facilitates arbitrage trading, we hypothesize that arbitrage gains across SOE and POE stocks should shrink after the reform. Consistent with our hypothesis, we find that SOE stock returns stochastically dominated POE stock returns before the reform, but there was no dominance relationship between them after the reform.

Keywords: Split-Share Structure Reform, State Owned Enterprises, Privately Owned Enterprises, Stochastic Dominance

JEL Classification: G15, G11

Suggested Citation

Pukthuanthong, Kuntara and Qiao, Zhuo, Has the Difference in Stock Liquidity and Stock Returns Between Chinese State Owned and Privately Owned Enterprises Become Smaller? (March 25, 2018). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3149203

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

Zhuo Qiao

University of Macau ( email )

P.O. Box 3001
Macau

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