The effect of market segmentation on stock prices: The China syndrome

Qian Sun, Hin Sang Tong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

124 Citations (Scopus)


China has an A-share market that is open only to local investors and a B-share market that is open only to foreign investors. Contrary to what has been observed in other markets with a similar segmented structure, the China B shares trade at a discount relative to the A shares. We show that the phenomenon can still be explained by basic economic principles. Specifically, the existence of the H-share and the "red-chip" markets in Hong Kong provide good substitutes for the B-share market. We find that when more H shares and red chips are listed in Hong Kong, the B-share discount becomes larger. This is consistent with the model of differential demand elasticity proposed by Stulz and Wasserfallen (Stulz, R., Wasserfallen, W., 1995. Review of Financial Studies 8, 1019-1057).
Original languageEnglish
Pages (from-to)1875-1902
Number of pages28
JournalJournal of Banking and Finance
Issue number12
Publication statusPublished - 1 Jan 2000
Externally publishedYes


  • A, B, and H shares
  • China market
  • Demand elasticity
  • G10
  • G15
  • Market segmentation
  • Red chips

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


Dive into the research topics of 'The effect of market segmentation on stock prices: The China syndrome'. Together they form a unique fingerprint.

Cite this