The real value of China’s stock market

Jennifer N. Carpenter, Fangzhou Lu and Robert F. Whitelaw

Journal of Financial Economics, 2021, vol. 139, issue 3, 679-696

Abstract: What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among privately owned firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for state-owned enterprises fell below that of privately owned firms after the postcrisis stimulus, perhaps reflecting unpredictable subsidies and state-directed investment policy. Finally, evidence from realized returns suggests Chinese firms face a higher cost of equity capital than US firms.

Keywords: Capital allocation; Price informativeness; Market integration; Global investing (search for similar items in EconPapers)
JEL-codes: E02 G12 G14 G15 O16 P34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:3:p:679-696

DOI: 10.1016/j.jfineco.2020.08.012

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