The Behavior of China's Stock Prices in Response to the Proposal and Approval of Bonus Issues

30 Pages Posted: 30 Jun 2004

See all articles by Michelle L. Barnes

Michelle L. Barnes

Federal Reserve Bank of Boston

Shiguang Ma

University of Wollongong - School of Accounting Economics and Finance

Abstract

Event study analysis is applied to investigate stock price reaction to the announcement of bonus issues for the emerging stock markets of China. Results show that the issues with a high bonus ratio (number of bonus shares in the issue/number of existing shares) usually attract positive returns for both Chinese (A-share traders) and foreign (B-share traders) residents. Issues with a low bonus ratio are rewarded with negative returns for A-share traders and do not stimulate significant activity by B-share traders. The hypothesis of semi-strong form market efficiency is rejected only for small-bonus issues traded on the A-share market; the B-share market displays stronger evidence of semi-strong form market efficiency than the A-share market. Finally, there appears to be additional informational content in the approvals of bonus issues above and beyond that of the proposals, even though most bonus schedules proceed as proposed.

Keywords: Chinese Stock Markets, Efficient Market Hypothesis (EMH), Semi-Strong Form Efficiency, Event Study, Announcements of Proposal or Approval, Underreaction and Overreaction

JEL Classification: G14, G18, O16

Suggested Citation

Barnes, Michelle L. and Ma, Shiguang, The Behavior of China's Stock Prices in Response to the Proposal and Approval of Bonus Issues. Available at SSRN: https://ssrn.com/abstract=458541 or http://dx.doi.org/10.2139/ssrn.458541

Michelle L. Barnes (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Shiguang Ma

University of Wollongong - School of Accounting Economics and Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

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