Article ID Journal Published Year Pages File Type
9726736 Journal of Multinational Financial Management 2005 20 Pages PDF
Abstract
In contrast with price premium for foreign shares in other countries, China's foreign shares (B-shares) are unique in that they are traded at a large discount from their domestic shares (A-shares). We examine how the presence of Chinese stocks in the U.S. affects this discount. We extend the substitution effect of Sun and Tong [Sun, Q., Tong, W.H.S., 2000. The effect of market segmentation on stock prices: the China syndrome. Journal of Banking and Finance 24, 1875-1902] and find that the number and trading volume of Chinese firms traded in the U.S. are also significantly negatively related to the B-share premium. The substitution effect from these stocks is stronger than that from Chinese stocks listed in Hong Kong. For a smaller sample of Chinese firms with B-shares cross-listed in both the U.S. and China, we find the presence of a counteracting effect as a result of such listing. We utilize the methodology of Domowitz et al. [Domowitz, I., Glen, J., Madhavan, A., 1998. International cross-listing and order flow migration: evidence from an emerging market. Journal of Finance 53, 2001-2027] and find that the home market price volatility of these stocks is significantly reduced as a result of the cross-listing, but that the cross-listing has no impact on the home market liquidity.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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