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The diversification benefits and policy risks of accessing China’s stock market

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  • Shan, Chenyu
  • Tang, Dragon Yongjun
  • Wang, Sarah Qian
  • Zhang, Chang

Abstract

China’s stock market (the “A share market”) has a lower correlation with the global market and is less affected by international financial contagions than any other major economy. The inclusion of mainland China stocks into an international portfolio increases its Sharpe ratio. However, we find that Chinese stocks providing the most diversification benefits also carry the most policy risk for international investors. Holding Chinese stocks listed in Hong Kong does not reap the same diversification benefits. While global market integration and the increase in foreign ownership can diminish diversification benefits, mainland China stocks still provide valuable diversification opportunities for international investors up till the most recent time in late 2010s.

Suggested Citation

  • Shan, Chenyu & Tang, Dragon Yongjun & Wang, Sarah Qian & Zhang, Chang, 2022. "The diversification benefits and policy risks of accessing China’s stock market," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 155-175.
    • Handle: RePEc:eee:empfin:v:66:y:2022:i:c:p:155-175
    DOI: 10.1016/j.jempfin.2022.01.001
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    3. Zheng, Yanting & Luan, Xin & Lu, Xin & Liu, Jiaming, 2023. "A new view of risk contagion by decomposition of dependence structure: Empirical analysis of Sino-US stock markets," International Review of Financial Analysis, Elsevier, vol. 90(C).

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    More about this item

    Keywords

    International diversification; Contagion; China; Stock market; Policy risks;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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