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Risk-sharing, market imperfections, asset prices: Evidence from China’s stock market liberalization

Marc Chan and Simon Kwok

Journal of Banking & Finance, 2017, vol. 84, issue C, 166-187

Abstract: We examine the roles of risk-sharing and other factors in stock price revaluation during a recent liberalization episode in China. Consistent with the theoretical prediction that liberalizations reduce systematic risk, we find that risk-sharing explains approximately one-fourth of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The firm-specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity, information transparency, and informed trading.

Keywords: Stock market liberalization; Chinese reform; Risk-sharing; Market imperfections; Asset pricing (search for similar items in EconPapers)
JEL-codes: G12 G15 G18 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jbfina:v:84:y:2017:i:c:p:166-187