Chinese A-share Research Articles

Cross-correlations between Chinese A-share and B-share markets

In this paper, we investigate the cross-correlations between Chinese A-share and B-share markets. Qualitatively, we find that the return series of Chinese A-share and B-share markets were overall significantly cross-correlated based on the analysis of a statistic. Quantitatively, employing the detrended cross-correlation analysis, we find that the cross-correlations were strongly multifractal in the short-term and weakly multifractal in the long-term. Moreover, the cross-correlations of small fluctuations were persistent and those of large fluctuations were anti-persistent in the short-term while cross-correlations of all kinds of fluctuations were persistent in the long-term. Using the method of rolling windows, we find that the cross-correlations were weaker and weaker over time, especially after the price-limited reform. We attribute the fact to the improvement of market efficiency. On the volatility series, our results show that the cross-correlations were much stronger than those between return series. Results from rolling windows show that the short-term cross-correlations between volatility series are still high now. We also provide some relevant discussions later.

The Use of 'Lucky' Numbers in the Pricing of Chinese A-Share Initial Public Offerings

On July 7, 2010 the Agricultural Bank of China Limited announced the share price of its initial public offering (IPO) for the Chinese domestic market on the Shanghai Stock Exchange at a price of Rmb 2.68. It just so happens that the number 68 reminds Chinese speakers of a prosperous life. The number 8 on its own is considered lucky and pervades Chinese consumer pricing as a marketing tool. We find that twenty-six percent of the IPO prices for the Chinese domestic market between 2000 and 2009 end in the lucky number 8. We also find that other lucky numbers, and lucky number combinations, are favoured in Chinese IPO pricing. The number 4, for which the pronunciation is reminiscent of the word death, is also systematically avoided. In the United States IPO market, most IPO prices are based on the integer. This has been attributed to the negotiation hypothesis, where IPOs priced on the integer signify uncertainty as to the intrinsic value of an IPO. We find no evidence that this is also the case in the Chinese IPO market based on either number 8 or integer price-endings. We do find evidence that issuers and underwriters use number 8 price-endings to capitalise on investor sentiment. This is consistent with the marketing literature, where the number 8 is consistently used as a price-ending in advertising for Chinese consumer products.

Information Asymmetry, Price Discovery, and the Chinese B-Share Discount Puzzle

This paper addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle, contingent upon Chinese stock market liberalization reforms in 2001 and 2002. In contrast with the widespread notion that domestic investors are better informed than foreign investors, this study shows that foreign investors actually possess more value-relevant, firm-specific information in emerging markets, where information transparency and investor protection rights are relatively weak. As such, the observed B-share discount is not compensation for the informational disadvantage of foreign investors but, rather, the result of a downward price correction (toward the fundamental values) once more firm-specific information is capitalized by sophisticated foreign investors in the B-share market. The price correction effect is significant even after controlling for several alternative explanations. Further investigation suggests a mitigated degree of information asymmetry and B-share discount upon market liberalization.

Performance Volatility and Wage Elasticity: An Examination of Listed Chinese A-share Enterprises

The management of future financial risk on the part of managers and changes in firm finances are two of the fundamental reasons for upward and downward rigidity of wages. The proxy variable for firm financial risk is volatility, the past performance of which is among the principal indicators of wage rigidity. In firms whose current performance is on the upswing, the greater the volatility in past performance, the smaller the elasticity ratio and the more acute the upward rigidity; the more stable past performance, the larger the elasticity ratio and the more acute the upward elasticity. In firms in which current performance is declining, greater past performance volatility leads to a larger elasticity ratio and more acute downward rigidity, whereas more stable such performance leads to a smaller elasticity ratio and more acute downward rigidity.

Detecting hot and cold cycles using a Markov regime switching model—Evidence from the Chinese A-share IPO market

This paper focuses on detecting hot and cold IPO cycles in the Chinese A-share market using a Markov regime switching model. We introduce a set of observations to measure IPO activities, which include numbers of IPOs issued, levels of underpricing, market conditions and duration time from prospectus and listing, and thus establish a model to estimate these activities' average performance in hot and cold periods respectively. It is found that a hot period is related with an abundant supply of IPOs, high levels of underpricing, positive market conditions and short waiting time to listing after prospectus issue. Further, this paper depicts the turning points of hot and cold periods across the period from 1994 to 2005 for each observation. The cycles detected by the number of IPOs per month are the benchmark and then these cycles' robustness is tested by the other observations.

Intraday Pattern in Bid-Ask Spreads and Its Power-Law Relaxation for Chinese A-Share Stocks

We use high-frequency data of 1364 Chinese A-share stocks traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange to investigate the intraday patterns in the bid-ask spreads. The daily periodicity in the spread time series is confirmed by Lomb analysis and the intraday bid-ask spreads are found to exhibit $L$-shaped pattern with idiosyncratic fine structure. The intraday spread of individual stocks relaxes as a power law within the first hour of the continuous double auction from 9:30AM to 10:30AM with exponents $\beta_{\rm{SHSE}}=0.19\pm0.069$ for the Shanghai market and $\beta_{\rm{SZSE}}=0.18\pm0.067$ for the Shenzhen market. The power-law relaxation exponent $\beta$ of individual stocks is roughly normally distributed. There is evidence showing that the accumulation of information widening the spread is an endogenous process.

Environmental Disclosure of Chemical Industry: Evidence from Chinese A-Share Market

Abstract Environmental pollution and environmental reporting have increasingly drawn the attention of the countries around the world. The paper selects A-share listed companies of chemical industry in China. Using logistic model, we research the impact of financial performance of listed companies upon environmental reporting. The conclusion of the study shows that the total number of enterprises which disclosed environmental information (EI) has increased year by year, and EI content and volume disclosed by heavy pollution corporations have increased annually. And the more profitability the listed companies attain, the more EI they are inclined to disclose. Moreover, companies will have an ability to disclose EI so as to reduce the agency costs arising from information asymmetry. Furthermore, the development capability of companies is of negative correlation to environmental reporting, and the liabilities degree of listed companies is of negative correlation to environmental reporting, but it is not signi...

Further evidence on the efficiency of the Chinese stock markets: A note

This paper examines the efficiency of the Chinese A-share and B-share markets following the deregulation of the B-share market which widened ownership to include domestic investors. Applying parametric and non-parametric variance ratio tests to the daily data of 370 shares over 1996–2005, the paper finds that A-shares are more efficient than B-shares, although the efficiency of both markets has improved following the regulatory change. Overall, the results suggest that the Chinese stock markets are characterised by information asymmetry, although the timely access to high quality information that domestic investors enjoy has improved the efficiency of the B-share market.

Empirical analysis of dynamic correlations of stock returns: evidence from Chinese A-share and B-share markets

This paper examines the dynamic correlation structure between A-share and B-share stock returns based on three different measures of correlation coefficients. Testing the models by employing daily stock-return data for the period from 1996 through 2003, we reach the following empirical conclusions. First, the correlation coefficients between A-share and B-share stock returns are time varying. Second, the dynamic path of the correlation coefficients indicates that the correlation coefficients are significantly correlated with the trend factor. Third, there is a substantial spillover effect from the Asian crisis to Chinese stock-return dynamic correlations. Fourth, the evidence suggests that the time-varying correlations are significantly associated with excessive trading activity as measured by excessive trading volumes and high–low price differentials. Fifth, the correlation between A-share and B-share markets has increased since the relaxation of the restriction on B-share market investments by domestic investors.

Ownership Restriction, Information Diffusion Speed, and the Performance of Technical Trading Rules in Chinese Domestic and Foreign Shares Markets

We examine the performance of technical trading rules in Chinese domestic A-share and foreign B-share markets. After controlling for non-synchronous trading and transaction costs, we find evidence to support the predictability and profitability of some of the most popular technical trading rules for B-shares but not for A-shares. However, after February 19, 2001, when domestic investors were allowed to trade B-shares, the predictive power of the trading rules in B-share markets disappeared. We conjecture that the predictability of technical trading rules in B-share markets can be attributed to the gradual diffusion of information among foreign investors under the foreign share ownership restriction, and, partly, to positive autocorrelations induced by thin trading.

IPO underpricing in China: New evidence from the primary and secondary markets

This paper divides Chinese A-Share IPO initial returns into the initial return in the primary market and in the secondary market. Our empirical evidence shows that the initial abnormal return in the secondary market is significantly positive. This study also finds that 1) the initial return in the primary market is negatively related to the subscription or lottery ratio; 2) the initial return in the secondary market is positively related to the market return, and negatively related to IPO offering prices; 3) the initial turnover is negatively related to the offering size; 4) the initial turnover has no impact on the initial return in the secondary market but the latter has a significantly positive influence on the initial turnover.

Herding behavior in Chinese stock markets: An examination of A and B shares

This study examines herding behavior in dual-listed Chinese A-share and B-share stocks. We find evidence of herding within both the Shanghai and Shenzhen A-share markets that are dominated by domestic individual investors, and also within both B-share markets, in which foreign institutional investors are the main participants. Herding occurs in both rising and falling market conditions. Herding behavior by A-share investors in the Shanghai market is more pronounced under conditions of rising markets, high trading volume, and high volatility, while no asymmetry is apparent in the B-share market.

IPO Underpricing in China: New Evidence from the Primary and Secondary Markets

This paper divides Chinese A-Share IPO initial returns into the initial return of the primary market and of the secondary market. Our empirical evidence shows that the initial abnormal return on the secondary market is significantly positive. This study also finds that 1) the initial return of the primary market is negatively related to the subscription or lottery ratio; 2) the initial return of the secondary market is positively related to the market return, and negatively related to IPO offering prices; 3) the initial turnover is negatively related to the offering size; 4) the initial turnover has no impact on the initial return of the secondary market but the latter has a significantly positive influence on the initial turnover.

Capital Control, Market Segmentation And Cross-Border Flow Of Information: Some Empirical Evidence From The Chinese Stock Market

This paper investigates the trading activities of two distinct classes of shareholders, namely, the Chinese domestic investors and the foreign investors in the segmented Chinese A-share and B-share markets, respectively. Based on the results of our event study, we document prominent volatility and trading volumes during the windows of earnings announcements. The market reaction is more intensive in the A-share market and takes place much earlier before the public release of information. Furthermore, the abnormal trading volumes without price changes in advance of the public disclosure support the hypothesis of existing information among the A-share investors. This manifests information leakage and suggests an informal information environment in the A-share market. We further classify the earnings announcements into good news and bad news, and find that different information does not bring about different reaction patterns for the A shares. Insider trading, speculation and over-optimistic prospects for the economy in the A-share market are possible explanations.