Effects of differences of opinions and short‐sale constraints on the dual listed Chinese shares

Zhenmin Fang and Xin Jiang

China Finance Review International, 2013, vol. 3, issue 1, 61-89

Abstract: Purpose - The purpose of this paper is to study the effects of short‐sale constraints and differences of opinions on the price premium of dual listed Chinese A‐H shares. Design/methodology/approach - The analysis mainly follows the Miller's model, which indicates that the relaxation of stringent short‐sale constraint could reduce the upward bias in stock prices. Following the literature, the paper uses the idiosyncratic return volatility and monthly turnover rate as two main proxies of differences of opinions. Findings - This study shows that the high level of A‐share differences of opinions will lead to the high price premium of A‐share portfolio with the short‐sale constraint in the A‐share market. However, the high level of H‐share differences of opinions has no effect on the price premium of H‐share portfolio and has also positively contributed to the A‐share price premium. The price premium of shorted A‐share portfolio is declined more significantly than those of non‐shorted ones after the relaxation of short‐sale constraint in the A‐share market. Research limitations/implications - The findings in this study provide further evidence that dual listed Chinese A‐shares with high level of differences of opinions and short‐sale constraints tend to be overvalued. Practical implications - This study supports Miller's hypothesis that with the control of short‐sale constraint, the high level of differences of opinions could lead to the high degree of overvaluation of A‐share portfolio. The market capitalization and book‐to‐market ratio of A‐shares also generate significant positive effect to the A‐share price premium. Finally, the introduction of short‐sale mechanism in A‐share market could partially eliminate the mispricing of dual‐listed A‐shares and improve the price efficiency of A‐share market. Originality/value - This study is mainly focused on the joint effects of differences of opinions and short‐sale constraints on the A‐share price premium. The new short‐sale policy in A‐share market in March 2010 provides us an opportunity to study the effect of relaxation of stringent short‐sale constraint on the A‐share price premium. In the literatures so far, all studies assumed A‐shares are strictly prohibited to be sold short.

Keywords: Differences of opinions; Short‐sale constraint; A‐share price premium; Dual listed shares; China; Shares (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:v:3:y:2013:i:1:p:61-89

DOI: 10.1108/20441391311290785

Access Statistics for this article

China Finance Review International is currently edited by Professor Chongfeng Wu and Professor Haitao Li

More articles in China Finance Review International from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().