Journal of Banking & Finance Vol. 24 No. 12 2000
The effect of market segmentation on stock prices: The China syndrome
Abstract
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).
- DOI
- 10.1016/s0378-4266(99)00121-1
- Volume
- 24
- Issue
- 12
- Pages
- 1875-1902
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib