Asset pricing in segmented capital markets : preliminary evidence from China-domiciled companies

Pui Han, Winnie POON, Michael Arthur FIRTH, H. G. FUNG

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

    38 Citations (Scopus)

    Abstract

    A number of Chinese companies have issued shares to investors within China (A shares) and issued shares to foreign investors (B, H, and N shares). All these shares have equal rights although A shares can only be sold to, and traded among, PRC citizens and B, H, and N shares can only be issued to, and traded among, foreign investors. The paper examines the impact of the initial listing of B-share issues on the prices of already listed A shares. Our analyses test the joint characteristics of market segmentation and seasoned equity offerings. We find that the abnormal returns on A-share companies that also offer B shares are significantly negative, a result consistent with the hypothesis that the demand curve for equity shares is downward sloping. Interestingly, these negative abnormal returns can be explained by our proxies for the investor recognition theory of Merton (1987) and the liquidity theory of Amihud and Mendelson (1986).
    Original languageEnglish
    Pages (from-to)307-319
    Number of pages13
    JournalPacific Basin Finance Journal
    Volume6
    Issue number3/4
    DOIs
    Publication statusPublished - 1 Jan 1998

    Fingerprint

    Foreign investors
    Asset pricing
    Abnormal returns
    China
    Investors
    Capital markets
    Liquidity
    Market segmentation
    Demand curve
    Seasoned equity offerings
    Equity

    Keywords

    • Chinese financial markets
    • International asset pricing
    • Market segmentation

    Cite this

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    title = "Asset pricing in segmented capital markets : preliminary evidence from China-domiciled companies",
    abstract = "A number of Chinese companies have issued shares to investors within China (A shares) and issued shares to foreign investors (B, H, and N shares). All these shares have equal rights although A shares can only be sold to, and traded among, PRC citizens and B, H, and N shares can only be issued to, and traded among, foreign investors. The paper examines the impact of the initial listing of B-share issues on the prices of already listed A shares. Our analyses test the joint characteristics of market segmentation and seasoned equity offerings. We find that the abnormal returns on A-share companies that also offer B shares are significantly negative, a result consistent with the hypothesis that the demand curve for equity shares is downward sloping. Interestingly, these negative abnormal returns can be explained by our proxies for the investor recognition theory of Merton (1987) and the liquidity theory of Amihud and Mendelson (1986).",
    keywords = "Chinese financial markets, International asset pricing, Market segmentation",
    author = "POON, {Pui Han, Winnie} and FIRTH, {Michael Arthur} and FUNG, {H. G.}",
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    Asset pricing in segmented capital markets : preliminary evidence from China-domiciled companies. / POON, Pui Han, Winnie; FIRTH, Michael Arthur; FUNG, H. G.

    In: Pacific Basin Finance Journal, Vol. 6, No. 3/4, 01.01.1998, p. 307-319.

    Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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