Abstract
We explain the price discount and high returns for B shares relative to their A-share counterparts in Chinese stock markets. We report evidence that the higher the dispersion of domestic analysts’ forecasts, the lower are A-share returns, implying that the short-sales restriction is binding for trading in A shares. In contrast, there is no evidence that the short-sales restriction is binding for trading in B shares. Another factor contributing to low B-share prices and high returns is the near- or total absence of non-domestic analysts’ forecasts for a significant proportion of companies. Our evidence that “neglect” increases B-share returns is significant and robust.
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