The diversification benefits and policy risks of accessing China’s stock market

Chenyu Shan, Dragon Yongjun Tang, Sarah Qian Wang and Chang Zhang

Journal of Empirical Finance, 2022, vol. 66, issue C, 155-175

Abstract: China’s stock market (the “A share market”) has a lower correlation with the global market and is less affected by international financial contagions than any other major economy. The inclusion of mainland China stocks into an international portfolio increases its Sharpe ratio. However, we find that Chinese stocks providing the most diversification benefits also carry the most policy risk for international investors. Holding Chinese stocks listed in Hong Kong does not reap the same diversification benefits. While global market integration and the increase in foreign ownership can diminish diversification benefits, mainland China stocks still provide valuable diversification opportunities for international investors up till the most recent time in late 2010s.

Keywords: International diversification; Contagion; China; Stock market; Policy risks (search for similar items in EconPapers)
JEL-codes: F3 G01 G12 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:66:y:2022:i:c:p:155-175

DOI: 10.1016/j.jempfin.2022.01.001

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