IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v06y2003i02ns0219091503001067.html
   My bibliography  Save this article

Risk under "One Country and Two Systems": Evidence from Class A, B and H Shares of Chinese Listed Companies

Author

Listed:
  • Yimin Zhang

    (Department of Economics and Finance, City University of Hong Kong, China)

  • Ronald Zhao

    (Department of Accounting and Business Law, Monmouth University, New Jersey, USA)

Abstract

Chinese listed companies issue Class A, B and H shares to Chinese, foreign and Hong Kong investors, respectively. Entitled to exactly the same rights and obligations, the three classes of shares are, however, traded at significantly different prices. The valuation differential is attributable to the different responses to the country-specific risk related to the emerging Chinese stock market by the three categories of investors. The country risk of China can be decomposed into political risk, exchange rate risk, interest rate risk and market risk. Empirical tests provide strong evidence to support the decomposition model. Compared with Chinese investors of A-shares, foreign investors would require a higher rate of return for B-shares to adjust for the political risk of China, reflecting a differential in the risk premium required on the world capital market. In comparison, the Hong Kong investors, who have greater tolerance of the political risk involved in H-shares as a result of the increasing integration between the Hong Kong and Chinese markets under "one country and two systems", are willing to pay a higher price for H-shares relative to B-shares.

Suggested Citation

  • Yimin Zhang & Ronald Zhao, 2003. "Risk under "One Country and Two Systems": Evidence from Class A, B and H Shares of Chinese Listed Companies," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 179-197.
    • Handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:02:n:s0219091503001067
    DOI: 10.1142/S0219091503001067
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091503001067
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091503001067?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jiang, Haiyan & Chen, Jun, 2019. "Short selling and financial reporting quality: Evidence from Chinese AH shares," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 118-130.
    2. David Morelli, 2012. "Security returns, beta, size, and book-to-market equity: evidence from the Shanghai A-share market," Review of Quantitative Finance and Accounting, Springer, vol. 38(1), pages 47-60, January.
    3. Wang, Yuenan & Iorio, Amalia Di, 2007. "Are the China-related stock markets segmented with both world and regional stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 277-290, July.
    4. Yuenan Wang & Amalia Di Iorio, 2007. "The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market," Review of Quantitative Finance and Accounting, Springer, vol. 29(2), pages 181-203, August.
    5. Priscilla Swartz, 2006. "Global Versus Regional Systematic Risk and International Asset Allocations in Asia," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 77-89, May.
    6. Zhijun Zhao & Yue Ma & Yuhui Liu, 2005. "Equity Valuation in Mainland China and Hong Kong: The Chinese A-H Share Premium," Working Papers 142005, Hong Kong Institute for Monetary Research.

    More about this item

    Keywords

    China; country risk; Hong Kong; market segmentation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:02:n:s0219091503001067. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.