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Risk-sharing, market imperfections, asset prices: Evidence from China’s stock market liberalization

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  • Chan, Marc K.
  • Kwok, Simon

Abstract

We examine the roles of risk-sharing and other factors in stock price revaluation during a recent liberalization episode in China. Consistent with the theoretical prediction that liberalizations reduce systematic risk, we find that risk-sharing explains approximately one-fourth of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The firm-specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity, information transparency, and informed trading.

Suggested Citation

  • Chan, Marc K. & Kwok, Simon, 2017. "Risk-sharing, market imperfections, asset prices: Evidence from China’s stock market liberalization," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 166-187.
    • Handle: RePEc:eee:jbfina:v:84:y:2017:i:c:p:166-187
    DOI: 10.1016/j.jbankfin.2017.06.003
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    More about this item

    Keywords

    Stock market liberalization; Chinese reform; Risk-sharing; Market imperfections; Asset pricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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