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Stock market efficiency in China: Evidence from the split-share reform

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  • Beltratti, Andrea
  • Bortolotti, Bernardo
  • Caccavaio, Marianna

Abstract

We perform an event study to investigate the efficiency of the Chinese stock market. We study the reaction of stock returns and trading volumes to the 2005–2006 structural reform which allowed the transformation of non-tradable shares (NTS) into tradable shares (TS) through payment of a compensation to holders of TS. We find evidence of positive abnormal returns in the few days before announcement of which companies will undergo the reform process, that can be explained by information leakage and not by a compensation risk premium, and in the ten days after the readmission to trading of participating companies following the determination of the compensation, which is consistent with a Merton visibility effect. We use a bootstrap procedure designed to replicate the actual degree of covariance across firms.

Suggested Citation

  • Beltratti, Andrea & Bortolotti, Bernardo & Caccavaio, Marianna, 2016. "Stock market efficiency in China: Evidence from the split-share reform," The Quarterly Review of Economics and Finance, Elsevier, vol. 60(C), pages 125-137.
    • Handle: RePEc:eee:quaeco:v:60:y:2016:i:c:p:125-137
    DOI: 10.1016/j.qref.2015.11.002
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    More about this item

    Keywords

    Chinese stock market; Market efficiency; Event study; Bootstrap;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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