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Stock Prices in a Speculative Market: The Chinese Split-Share Reform

Author

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

Abstract

In 2005-2006 China reformed its stock market by eliminating non-tradable shares. The regulator set general guidelines and then assigned responsibility for implementation to each company. We derive relations that should have been followed by the prices of stocks and exploit a company-level data set to compare the actual and the theoretical price reactions. We find evidence for abnormal returns both before the beginning of the reform and during the reform. Cross-sectionally, abnormal returns are associated mainly with turnover and compensation. This shows that in a speculative market, investors do not properly react to unambiguous corporate actions.

Suggested Citation

  • Beltratti, Andrea & Caccavaio, Marianna & Bortolotti, Bernardo, 2009. "Stock Prices in a Speculative Market: The Chinese Split-Share Reform," Institutions and Markets Papers 50364, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemim:50364
    DOI: 10.22004/ag.econ.50364
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    Cited by:

    1. Yongheng Deng & Eric Girardin & Roselyne Joyeux & Shuping Shi, 2017. "Did bubbles migrate from the stock to the housing market in China between 2005 and 2010?," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 276-292, August.
    2. Enrico Geretto & Rubens Pauluzzo, 2012. "Stock Exchange Markets in China: Structure and Main Problems," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(1), pages 89-106, September.
    3. Girardin, Eric & Joyeux, Roselyne, 2013. "Macro fundamentals as a source of stock market volatility in China: A GARCH-MIDAS approach," Economic Modelling, Elsevier, vol. 34(C), pages 59-68.

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    Keywords

    Financial Economics;

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