Existing studies have found that ex post stock returns are positively skewed, but such skewness is only persistent for individual stocks, not for portfolios. This implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection. However, the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when forming these portfolios. It is more meaningful to see if the positive skewness would persist in optimally formed mean–variance–skewness efficient portfolios. Using stocks from both Japanese and US markets and a bootstrap method, we find that the portfolios optimally formed by using a polynomial goal programming method, which considers preference for skewness, greatly enhances skewness persistence over time. Our results are robust across both Japanese and US stocks. However, the skewness persistence is stronger for portfolios formed with monthly data than that with weekly data. These findings have practical implications to investors with skewness preferences.

We use a time-series GARCH framework with the conditional variance/covariance as proxies for systematic risk to reexamine the proposition by Rozeff and Kinney (1976) and Rogalski and Tinic (1986) that the January effect may be a phenomenon of risk compensation in the month. We find no clear evidence that either conditional volatility or unconditional volatility in January is predominantly higher across the sampling years. Hence, against the proposition, the January effect is not due to risk per se. Rather, we find strong evidence that the January effect is due to higher compensation for risk in the month. This may be possible if investors have an increasing RRA utility function. Although many studies find that volatility tends to be higher in January, we find it to be period-specific and mostly in value-weighted return series, but not in equal-weighted return series. This is true both for the unconditional and conditional return volatility.

Burgstahler and Dichev (BD) (Burgstahler, David, Ilia, Dichev, 1997. Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics 23(1), 99–126.) and Degorge, Patel, and Zeckhauser (DPZ) (Degeorge, Franscois, Patel, Jayendu, Zeckhauser, Richard, 1999. Earnings management to exceed thresholds. Journal of Business 72(1), 1–33.) examine earnings management among American firms by looking at actual distributions around critical thresholds. Chinese firms must meet minimal ROE requirements if they are to have rights issues. Using a distribution approach, we examine whether Chinese firms manipulate their earnings to meet the regulatory requirements. Our empirical findings indicate that Chinese firms indeed heavily engaged in earnings management to meet the rights issue thresholds during the period 1994–2002. In addition, we show that these firms changed their behavior in response to changes in regulatory requirements. Furthermore, we analyse the pervasiveness of this practice and the means used in earnings management at the relevant ROE thresholds. Our findings have direct policy implications for the China Securities Regulatory Committee (CSRC).

China has an A-share market that is open only to local investors and a B-share market that is open only to foreign investors. Contrary to what has been observed in other markets with a similar segmented structure, the China B shares trade at a discount relative to the A shares. We show that the phenomenon can still be explained by basic economic principles. Specifically, the existence of the H-share and the “red-chip” markets in Hong Kong provide good substitutes for the B-share market. We find that when more H shares and red chips are listed in Hong Kong, the B-share discount becomes larger. This is consistent with the model of differential demand elasticity proposed by Stulz and Wasserfallen (Stulz, R., Wasserfallen, W., 1995. Review of Financial Studies 8, 1019–1057).

We investigate why the Chinese government chooses to perform share issue privatization (SIP) of its state-owned enterprises (SOEs) in Hong Kong, despite the benefit of facilitating the domestic stock market development if performing SIP in China (Subrahmanyam and Titman, 1999) and the higher cost to list in Hong Kong. We address this issue by arguing that the positive effect of SIPs on the development of the domestic market may have limitations, especially when the domestic market is not well developed and cannot absorb rapid and large-scale SIP activities. To maintain domestic market order, it may be optimal to carry out SIP in overseas markets. Furthermore, by listing shares in developed overseas markets, SOEs from the less developed countries could leverage on the overseas markets’ better accounting, governance, and legal standards. By examining a sample of 92 Chinese firms listed in Hong Kong and the relevant control samples of purely domestically listed Chinese firms during the period of 1993–2006, we find supporting evidence for both arguments.

We study the impact of mainland Chinese listings in Hong Kong on the quality and development of the Hong Kong equity market. At the macro-level, we find that the increasing presence of mainland Chinese stocks in Hong Kong increases the size, trading volume, and its link with the China and world markets but reduces the overall volatility of the Hong Kong stock market. At the firm level, the increase affects the market quality, resulting in lower turnover rate, higher Amihud illiquidity ratio, and higher spread for non-mainland Chinese firms. Furthermore, such an increase in presence causes Hong Kong stocks to move in a more synchronized way and reduces these firms investment sensitivity to stock price movement, implying deterioration in the information environment. As a whole, the increasing presence of Chinese companies in Hong Kong brings benefits to the Hong Kong market, yet not without cost.

Our comprehensive study of 30 Singapore government-linked companies (GLCs) covering the period 1964 to1998 shows that share issue privatization has some positive impacts on their performance. However, there was no evidence that the GLCs were less profitable than a selected group of non-GLCs that match by size and industry. Taking a buy-and-hold strategy, we found that GLC stocks provide statistically equivalent returns relative to market or other control sample returns over various investment horizons of up to four years. Given that GLCs also perform as well as averages for the market and industry up to five years before their listing, we argue that Singapore's government-owned enterprises are comparable to privately run enterprises in efficiency.