The Effects of Open Market Reforms on the Behavior of China's Stock Prices (original) (raw)

The effect of the liberalization of the Chinese stock market on returns

Applied Economics Letters, 2018

We examine the short-term effects of the liberalization of the Chinese stock market on returns. We find a positive and significant abnormal return associated with the announcement of the liberalization of the Shanghai Stock Exchange. Exploiting features of the reform, we are able to compare stocks directly and indirectly affected by the liberalization. We find that all stock prices reflect this announcement premium equally, suggesting that the premium does not reflect an increase in expected liquidity. We further find that observed liquidity, as measured by volume and price impact, did not increase following the liberalization. We conclude that the observed premium reflects a diversification benefit for Chinese investors.

Study on Openness of Chinese Stock Market: Comparing with Mature Markets

The maturity and openness of Chinese stock markets can be measured by price impact of other mature stock markets on them. The article uses wavelet analysis to eliminate noise in stock price signal and analyzes to what degree is Shanghai stock market affected by volatility of stock markets of Hong Kong, Tokyo, New York and London by using SVAR (Structural Vector Auto Regression), impulse response analysis and variance decomposition. The results show that Chinese stock markets are becoming more and more mature and open, which are integrated into the global stock market gradually, which can be known from the response of Shanghai Composite Index shocked by the other indices. Among all the mature stock indices in the paper, influence of Dow-Jones Index on Shanghai Composite Index is most significant, followed by FTSE100 Index.

Financial Anomalies: Examination of Chinese B‐share Markets from 1993 to 2006

This study investigates the financial anomalies on the Chinese Shanghai B‐share (SHB) and Shenzhen B‐share (SZB) markets from 1993 to 2006 by using value‐weighted data and equal‐weighted data. Before February 2001, the B‐shares could be traded by only foreign investors. However, in February 2001, the Chinese investors were allowed to invest in the B‐share market. When both unadjusted value‐ weighted data and unadjusted equal‐weighted data are used, the study reveals there is the March effect after February 2001 in both SHB and SZB markets; however, there is no evidence of the March effect from the adjusted value‐weighted and adjusted equal‐weighted data for the same period. Our study shows that the high March market return was attributable to an unusual return in March 2001 which can be explained by the influx of funds due to the opening of the B‐share markets to domestic investors. Thus, we do not find clear evidence of seasonality in the Chinese B‐share markets. Nevertheless, the analysis on the adjusted equal‐weighted data finds a size effect in the Shenzhen B‐ share market – the smallest‐size group shows a significant January effect in the period from 2001 to 2006; which supports Reiganum (1983) that the January effect is largely a small capitalization phenomenon. Our findings may influence the investment behaviour of overseas investors.

Stock Exchange Markets in China: Structure and Main Problems

Transition Studies Review, ISSN 1614-4007 (Print), 1614-4015 (Online), 2012

The capital market of Mainland China is fragmented into different stock exchanges, each one with its own peculiarities. After a review of the main literature, the paper aims at deepening their characteristics, by taking into account their specific regulation. The current analysis also shows the main statistical data in terms of size, traded volumes, number of listed companies, types of traded products of the different stock exchanges. For every phenomenon considered, the study suggests plausible explanations. The paper also provides further considerations about the main problems of alignment with the international standards.

Is the stock market just a side-show? Evidence from the split-share reform in China

2010-10-25, http://ifas. xmu. edu. …, 2010

The 2005 split-share reform in China mandates the conversion of previously non-tradable shares into tradable status. The mandatory conversion is swift and a¤ects a large fraction of corporate shares in the country, with shareholders compensating each other with stock transfers. This reform is unique in allowing for insights into the importance on secondary share transactions: it provides for exogenous variation in stock liquidity and ownership. This paper investigates the impact of the 2005 split-share reform on Chinese …rms' real and …nancial performance. To sharpen our identi…cation, we take advantage of the subtleties of the reform in a number of ways. We explore, for example, the pilot program that took place at the beginning of the reform, as well as the staggered nature of the conversion process (with …rms converting in at di¤erent times). These various wrinkles are key in producing counterfactuals against which to test reform-led changes in performance. Using a time-varying treatment approach, we …nd that there are marked improvements in …rms'pro…tability, productivity, and investments after the …rms' stocks are allowed to be freely traded in the stock market. Importantly, we show that the reform presents distinct impacts in the short and long runs. Our …ndings speak to the success of reforms towards stock market liberalization; but more generally, they speak to the role of the stock market in the economy.

A Preliminary Study of the Emerging and Developing Stock Market of China

Journal of Business Theory and Practice

The Chinese share market as an emerging and fast-growing listing venue has experienced a significant development since 2000.Prior studies on this market overwhelmingly concentrate on IPO-pricing-related and post-IPO performance-based propositions with lagging data. Adopting the updated data within the last couple of years, this paper comprehensively explores and accounts for some striking features of the Chinese stock market, and unfolds some new causes contributing to these characteristics. Some new findings are revealed. 1) Two new factors may lead to the extreme under pricing in China's market, which are the unseasoned investor sand their high demands of IPO shares. 2) The foreign-currency trading platform is not effective and efficient to attract the overseas investors. 3) The imbalanced industry structure of the listed firms is very significant, the Chinese share market is dominated by the manufacturing firms.4) The Growth Enterprise Market of China is essential to address the long-standing financing difficulties for the Chinese Small and Medium-sized Enterprises, which are unqualified to raise capital from the Primary Stock Market.

Market segmentation, information asymmetry and investor responses of Chinese A and B markets

This paper examines changes in returns and trading volumes around earnings announcements for firms which have both A-shares (traditionally for local investors only) and B-shares (traditionally for foreign investors only) in China. It considers the impact of regulatory changes which reduced the segmentation of local and foreign investors across the two classes of shares. We find that both the A-and B-markets experience significant price changes around earning announcements. When the two markets are fully segmented, the magnitude of price changes in the A-share market are significantly smaller than the B-market which lends empirical support to the previous claim that the B-market is less informed. The changes in trading volume indicate that the B-market investors have less divergent expectations and interpretations of the pre-disclosure information compared to the A-market investors.However, when regulatory changes reduced the level of segmentation, the price and volume reactions in the two markets became more consistent. The results suggest that the A-and Bmarkets are more integrated as a result of the regulatory changes.

Regulatory changes and market liquidity in Chinese stock markets

Emerging Markets Review, 2006

Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover-volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets-but these effects were not long lasting.

The Information Environment of China's A and B Shares: Can We Make Sense of the Numbers

The International Journal of Accounting, 1999

In 1990, three stock exchanges were opened in Shanghai, Shenzhen and Beijing. Partial privatization of China's enterprises began with offering two types of shares: A shares are sold only domestically to locals and are denominated in local currency; B shares are denominated in dollars and are sold only to foreign investors. All listed firms offer A shares, but to qualify for offering B shares, the firm must prepare financial statements in accordance with International Accounting Standards and also meet other requirements. Firms issuing A shares only adopt domestic accounting regulations.As a way of generating capital funds, market segmentation has been a success. Both types of shares, however, have two different information environments. The environment of A shares appears to be dominated by local regulations and customs at the time of offering or trading. The information environment of A shares appears to be relatively unstructured and is affected by informal communication between various groups. Other than the roles played by state officials and appointed managers, external monitoring of A shares appears to be limited. Independence and social acceptance of auditing appear to be making slow progress, especially when the majority of domestic CPA firms are government owned. In contrast, the information environment for the B shares is more structured because (1) financial reporting adheres to International Accounting Standards, (2) financial statements are audited by CPA firms with international practice; and (3) foreign investors — mainly large financial institutions — also act as external monitors.We elaborate on the differences between these two information environments and suggest that accounting earnings and A share prices are not correlated, but earnings and share prices are correlated for B shares. In an event-study approach, we find results inconsistent with both hypotheses — for 1994 and 1995 we find that earnings and unexpected returns are correlated for A shares but not for B shares. The high price volatility, the significant and continuing dominance of government officials, and the thinness of trade in B shares are offered as possible explanation for these results.