Asset Float and Stock Prices: Evidence from the Chinese Stock Market

48 Pages Posted: 22 Mar 2007

See all articles by Andrea Beltratti

Andrea Beltratti

Bocconi University - Department of Finance

Marianna Caccavaio

Università Bocconi

Date Written: March 13, 2007

Abstract

The 2005-2006 reform of the Chinese stock market, aimed at eliminating nontradeable shares, is used to study the role of asset float on stock prices. The reform implies that holders of nontradeable shares compensate under various forms (cash, bonus shares, warrants) the holders of tradeable shares in exchange for their right to sell their shares at a future time. We exploit a company-level data set to measure the price reaction of each company to both the announcement of the details of the reform and the implementation of the compensation plan, using information about the timing of suspension of each stock from trading and subsequent readmission. The setup of the reform process is useful to disentangle the relative roles of information and supply. We carry out both an event study to measure abnormal returns and a cross sectional analysis to explore the determinants of the abnormal returns, with a particular attention devoted to the impact of supply shocks on returns. We find that the reform process has been successful and characterized by positive abnormal returns. We also find evidence on favor of a negatively sloped demand function.

Keywords: Speculation, Chinese Stock Market, Nontradeable shares, Event study, Asset float

JEL Classification: G14, N25

Suggested Citation

Beltratti, Andrea and Caccavaio, Marianna, Asset Float and Stock Prices: Evidence from the Chinese Stock Market (March 13, 2007). Available at SSRN: https://ssrn.com/abstract=971721 or http://dx.doi.org/10.2139/ssrn.971721

Andrea Beltratti (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Marianna Caccavaio

Università Bocconi ( email )

Piazza Sraffa 11
Milan, MI 20136
Italy

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