Foreign Ownership Restrictions And Market Segmentation In Chinas Stock Markets
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Foreign Ownership Restrictions and Market Segmentation in China's Stock Markets
Author | : Gong-meng Chen |
Publisher | : |
Total Pages | : |
Release | : 2001 |
Genre | : |
ISBN | : |
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We study market segmentation in China's stock markets, in which local firms issue two classes of shares: class A shares available only to Chinese citizens and class B shares available only to foreign citizens. Significant stock price discounts are documented for class B shares. We find that the price difference is primarily due to illiquid B-share markets. Relatively illiquid B-share stocks have a higher expected return and are priced lower to compensate investors for increased trading costs. However, between the two classes of shares, B-share prices tend to move more closely with market fundamentals than A-share prices. Therefore, we find A-share premia rather than B-share discounts in China's markets.
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