Market liberalization within a country

Qian Sun, Wilson H.S. Tong and Yuxing Yan

Journal of Empirical Finance, 2009, vol. 16, issue 1, pages 18-41

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.

Keywords: Partial; liberalization; Cross-market; trading; Market; quality; Market; segmentation; China (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:empfin:v:16:y:2009:i:1:p:18-41

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