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Integrating A- and B-Share Markets in China: The Effects of Regulatory Policy Changes on Market Efficiency

Author

Listed:
  • Changjiang Lu

    (Fudan University, School of Management, 670 Guoshun Road, Shanghai, 200433, P.R. China)

  • Kemin Wang

    (Fudan University, School of Management, 670 Guoshun Road, Shanghai, 200433, P.R. China)

  • Haiwei Chen

    (California State University, San Bernardino, Department of Accounting and Finance, 5500 University Parkway, San Bernardino, CA 92407-2397, USA)

  • James Chong

    (California State University, Northridge, Department of Finance, Real Estate, and Insurance, 18111 Nordhoff Street, Northridge, CA 91330-8379, USA)

Abstract

We investigate the effectiveness of two recent regulatory policy changes on market efficiency in the Chinese A- and B-share markets. Overall, the opening of the B-share market to domestic Chinese investors and the limited opening of the A-share market to foreign investors increase market efficiency. The opening of the B-share market significantly reduces the price differential between A- and B-shares. Furthermore, there is no longer feedback in returns between the two markets in recent years. Our results provide evidence that there is no detrimental effect to market efficiency by integrating Chinese investors to international markets and foreign investors to the Chinese stock markets.

Suggested Citation

  • Changjiang Lu & Kemin Wang & Haiwei Chen & James Chong, 2007. "Integrating A- and B-Share Markets in China: The Effects of Regulatory Policy Changes on Market Efficiency," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 309-328.
    • Handle: RePEc:wsi:rpbfmp:v:10:y:2007:i:03:n:s0219091507001082
    DOI: 10.1142/S0219091507001082
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    References listed on IDEAS

    as
    1. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
    2. Jianping Mei & Jose Scheinkman & Wei Xiong, 2005. "Speculative Trading and Stock Prices: An Analysis of Chinese A-B Share Premia," Levine's Bibliography 122247000000000867, UCLA Department of Economics.
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    Cited by:

    1. Al-Shboul, Mohammad & Alsharari, Nizar, 2019. "The dynamic behavior of evolving efficiency: Evidence from the UAE stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 119-135.
    2. Zaremba, Adam & Umutlu, Mehmet & Maydybura, Alina, 2020. "Where have the profits gone? Market efficiency and the disappearing equity anomalies in country and industry returns," Journal of Banking & Finance, Elsevier, vol. 121(C).
    3. 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.
    4. Yan Zeng & Josie McLaren, 2015. "The impact of large public sales of Government assets: empirical evidence from the Chinese stock markets on a gradual and offer-to-get approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 137-173, July.
    5. Hung, Jui-Cheng, 2009. "Deregulation and liberalization of the Chinese stock market and the improvement of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 843-857, August.
    6. Andy Wui Wing Cheng & Iris Wing Han Yip, 2017. "China’s Macroeconomic Fundamentals on Stock Market Volatility: Evidence from Shanghai and Hong Kong," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-57, June.
    7. Donald Lien & Chun-Da Chen, 2020. "B-share discount puzzle in China: a revisit of dual-share firms," Review of Managerial Science, Springer, vol. 14(5), pages 1047-1075, October.
    8. Darren Duxbury & Robert Hudson & Kevin Keasey & Zhishu Yang & Songyao Yao, 2013. "How prior realized outcomes affect portfolio decisions," Review of Quantitative Finance and Accounting, Springer, vol. 41(4), pages 611-629, November.
    9. Adcock, Chris & Ye, Caiwei & Yin, Shuxing & Zhang, Dalu, 2023. "Are Chinese B-shares dead? An analysis of price limits on AB-shares on the Shanghai and Shenzhen Stock Exchanges," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 306-315.
    10. Niklas Ahlgren & Bo Sjo & Jianhua Zhang, 2009. "Panel cointegration of Chinese A and B shares," Applied Financial Economics, Taylor & Francis Journals, vol. 19(23), pages 1859-1871.

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    More about this item

    Keywords

    China B-shares; market efficiency; GARCH; market integration;
    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

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