Abstract
China's B-share market, which used to be restricted to foreign investors, was partially opened up in February 2001 to Chinese local investors. We take this as a controlled experiment in cross-border trading on a small scale. We find mild but positive effects on the B-share market, with higher volumes, lower levels of volatility, lower bid-ask spreads and more liquidity after liberalization. Between A- and B-shares, price disparities narrowed; the correlation and the co-integration relationships became stronger; and the flow of information became more balanced. More new individual investors entered into the B-share market without crowding out existing institutional investors. Even though the liberalization measure is partial and one-way, it has helped to improve the quality of the B-share market, and our results lend no support to the popular claim that liberalization does nothing but help the existing foreign shareholders to cash out.
Original language | English |
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Pages (from-to) | 18-41 |
Number of pages | 24 |
Journal | Journal of Empirical Finance |
Volume | 16 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 2009 |
Keywords
- China
- Cross-market trading
- Market quality
- Market segmentation
- Partial liberalization
ASJC Scopus subject areas
- Finance
- Economics and Econometrics