Puzzles in the Chinese stock market

John Fernald () and John H. Rogers ()

No WP-00-13, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Many companies on China’s stock markets have separate, restricted classes of shares for domestic residents and foreigners. These shares are identical other than who can own them, but foreigners pay only about one-quarter the price paid by domestic residents. We argue that the generally higher level (and volatility) of domestic share prices is consistent with the simplest asset pricing model, assuming plausible differences-about 4 percentage-points-in expected rates of return by foreign and domestic investors. We attribute low Chinese expected returns to the limited alternative investments available in China. We then estimate how various company characteristics affect the relative price paid by foreigners in a panel of companies. We find, for example, that foreigners pay a lower relative price for companies with a higher proportion owned by the state--reflecting, surprisingly, a higher absolute price paid by both foreigners and domestic residents.

Keywords: Stock market; China (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
Date: 2000
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Related works:
Working Paper: Puzzles in the Chinese stock market (1998)
Journal Article: Puzzles In The Chinese Stock Market (2002)
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