Asset pricing in China's domestic stock markets: Is there a logic?

China's stock markets have grown rapidly since their inception and have become an increasingly important emerging market for international investors. However, there are few systematic studies on how asset prices are formed in Chinese domestic equity markets; popular financial media even depict the market as irrational. In this paper, we study the asset pricing mechanism in the nascent Chinese stock markets, with the objective of identifying variables that capture the cross-sectional variation in average stock returns. We focus on the effects of various market imperfections in China. We find that while the market risk (beta) is not priced, there is a significantly negative relationship between firm-specific risk and expected returns. Chinese investors are willing to pay a significant premium for more liquid stocks or for dividend-paying stocks. Furthermore, investors value local A-shares more if there are offshore counterparts (e.g., B- and H-shares) for foreigners, implying that a Chinese firm with a foreign shareholder base has a lower cost of capital, ceteris paribus. Lastly, as with U.S. and other mature markets, firm size and the book-to-market ratio are systematically related to stock returns. Given market imperfections, stocks are priced rather rationally in China, despite the widespread perception to the contrary.     

INTERNATIONAL TRANSFER OF PRICING INFORMATION BETWEEN DUALLY LISTED STOCKS

International multiple listing offers a unique opportunity to study the efficiency of information transmission across national markets. The knowledge gained from observing a stock of the same company priced in multiple markets differs from what may be gained from observing relations across markets of aggregate price indices. We investigate five companies based in Israel whose stocks are listed on both the Tel Aviv Stock Exchange and NASDAQ. Our empirical tests of causality in price changes use the side-by-side Box-Jenkins ARIMA models and the Sims VAR model. Overall, the results show that price causality in dually listed stocks is unidirectional from the domestic market to the foreign market.     

首次公开募股(IPO)市场表现及破发影响——基于港市中资股的经验证据

以在港上市中资股2013—2019年的数据为研究样本,首先,基于典型事件分析中资股在境外资本市场的整体表现;然后,采用多元回归模型实证检验破发、市场状况及投资者态度等因素对中资股市场表现的影响。研究结果表明：相较于恒生指数,港市中资股IPO上市后两年内的整体市场表现处于劣势;IPO破发不利于后期市场的表现,破发股的整体市场表现差于非破发股;投资者行为是市场表现的重要影响因素之一,投资者意见分歧会对中资股的市场表现产生正向影响;新股上市前的市场环境越好,中资股IPO上市后的市场表现会越好。     

Price discovery of cross-listed firms

This paper examines the contribution of cross-listing to price discovery for a unique and comprehensive sample of firms listed abroad. Using an extended measure of the common factor weight, we find that foreign market contribution to price discovery is more important for multiple-listed firms compared to cross-listed ones. Our results also show that US exchanges are more conductive to price discovery than do foreign European markets. On a univariate regression, we find new evidence that order driven markets and those which are more integrated with the world contribute significantly to price discovery of stocks listed abroad. On a multivariate regression, information asymmetry measures seem to have the most important effect on foreign market contribution to price determination.     

International Price Discovery for Emerging Market Stocks: Evidence from Indian GDRs

Given the rapid increase of the number of emerging market stocks being dually listed abroad, it is important to understand the role of the foreign markets in the price discovery process. We examine this issue by studying the role of the London Global Depositary Receipts (GDR) market for Indian stocks. We find that the London and the Mumbai prices are cointegrated despite arbitrage restrictions imposed by Indian government regulations. Each market contributes almost equally to price discovery, a result in contrast to the small contribution of offshore markets to price discovery of stocks based in developed economies. The GDR market's contribution to price discovery increases with the foreign ownership of the firm and GDR issue size. We also find evidence of significant volatility spillovers from the London market to the Indian market. The overall results suggest that offshore trading in emerging market stocks play a beneficial role by aiding domestic price discovery.     

The Cost of Capital of Cross‐listed Firms

This paper analyses the cost of capital of firms with foreign equity listings. Our purpose is to shed light on the question whether international and domestic asset pricing models yield a different estimate of the cost of capital for cross‐listed stocks. We distinguish between (i) the multifactor ICAPM of Solnik (1979) and Sercu (1980) including both the global market portfolio and exchange rate risk premia and (ii) the single factor domestic CAPM. We test for the significance of the cost of capital differential in a sample of 336 cross‐listed stocks from nine countries in the period 1980–99. Our hypothesis is that the cost of capital differential is substantial for firms with international listings, as these are often large multinationals with a strong international orientation. We find that the asset pricing models yield a significantly different estimate of the cost of capital for only 12% of the cross‐listed companies. The size of the cost of capital differential is around 50 basis points for the US, 80 basis points for the UK and 100 basis points for France.     

Commonality on Euronext: Do location and account type matter?

Using a rich dataset of orders and trades for a sample of stocks listed on four Euronext markets, we apply principal component analysis and provide evidence on the existence and magnitude of commonality in returns, order flow and liquidity. We show that commonality in order flow mainly comes from foreign market members acting for their own account. Proprietary trading is a major driver in trade imbalance and return commonality. Next, we provide evidence on commonality in hidden liquidity. In contrast to commonality in visible depth that is the strongest for large firms, comovements in hidden depth seem to be stronger for small caps. We also show that commonality in returns, order flow and liquidity is not constant throughout the day. The opening of US markets is a key moment where commonality often reaches its maximum level. These findings suggest that most of the commonality is driven by foreigners, generating an increase in systematic liquidity risk, due to foreigners' similar trading behaviors, whose importance evolves throughout the day.     

Ownership of Cross–Listed Equities: An Investigation of Turnover, Diversification, and Risk

Using data for a sample of Malaysian stocks that are traded in both Malaysia and Singapore, we show that the turnover rate (trading volume relative to shares held) is significantly higher in the foreign market than in the domestic market. We also find that ownership of cross–listed shares by foreign investors is not motivated by diversification benefits. Instead, we find that the proportion of a firm's shares held in Singapore is directly related to the firm's level of systematic risk.     

Determinants of Investor Demand for Cross‐Listed Firms

By focusing on the decisions of investors to invest in cross‐listed stocks, this paper presents new evidence on why we observe striking differences in the percentage of trade in foreign markets for cross‐listed stocks. With a large sample of Toronto Stock Exchange (TSX) stocks cross‐listed in the U.S. and Canada, we document the effect of investor recognition and risk characteristics on the distribution of trading volume. Firms that are more visible to American investors are traded more heavily in the U.S. At the same time, firms that offer diverse risk characteristics are attractive to Americans. While investors understand the benefits of international diversification, as they are attracted to stocks that are different (e.g., the stock of small firms with few assets in the U.S.), they also seek stocks that provide them with high returns.     

The decision to list abroad: The case of ADRs and foreign IPOs by Chinese companies

This paper examines the decision to list abroad by Chinese companies in the form of ADRs and foreign IPOs from 1993 to 2005. Our sample consists of 33 ADRs, 218 foreign IPOs, and a sample of 1418 domestic listings. We find evidence to support that issuers are motivated to cross-list due to the legal and accounting standards of the foreign markets, more stringent listing requirements and closer regulatory monitoring, significant demands for external capital due to rapid growth, an expanded shareholder base, and foreign expertise. The motives and firm factors differ by the type of issue (ADR versus foreign IPO) and by the market in which the foreign exchange is located (Hong Kong versus Singapore). Subsequent to the listing events, issuers experience a significant drop in profitability, tangible assets ratio, and asset turnover. There is no significant change in capital expenditure. Stock returns after the listing events are generally negative for ADR and foreign IPO stocks. More significantly, these stocks under-perform the market in the post-event window ranging from 3 days to 3 years.     

市场行情影响投资者的股利偏好吗?

基于2005-2017年A股上市公司的数据,研究了在不同的市场行情中,投资者对于股利政策的偏好差别。研究发现：对于现金股利而言,在上涨和下跌的市场行情中,投资者更偏好不发放现金股利的上市公司;在平稳行情中,投资者更偏好发放现金股利的上市公司。对于股票股利而言,在上涨行情中,投资者更偏好发放股票股利的上市公司;在下跌行情中,投资者更偏好不发放股票股利的上市公司;在平稳行情中,投资者对于是否发放股票股利没有显著的偏好差异。在上涨和下跌的市场行情中,超能力派现和高送转不会改变投资者的偏好;在平稳行情中,只有正常派现和正常送转才能赢得投资者的青睐,超能力派现行为无益于上市公司,高送转还会损害公司价值。     

Price leadership and asynchronous movements of multi-market listed stocks

We examine the asynchronous price movements of the same assets traded on multiple markets, each of which has its unique characteristics. Differently from the existing literature, we use a dynamic structural Vector Autoregressive (VAR) setting to explore the effects of market-wide and idiosyncratic shocks on both home and host listings. We find strong evidence that foreign prices lead home prices, but not the reverse effect. Contrary to theory predictions, investors in the firms’ home market respond to idiosyncratic fluctuations in the stock returns in the host markets. Our results suggest that investors pay attention to fluctuations in the stocks listed on the more institutionally developed markets.     

Seasonals,price adjustment delays and estimated systematic risk

This article analyzed potential interactions between seasonals and price adjustment delays on estimated systematic risk. It was shown that seasonals in unobservable true security returns can induce inconsistencies into the generalized Scholes and Williams estimator of systematic risk. An alternative estimator was proposed that is consistent in the presence of seasonals in the unobservable true returns. The direction of induced bias is unpredictable a priori, thereby representing a potentially important research consideration in market efficiency tests using abnormal returns. NASDAQ and Dow Jones 30 Industrial return data for the period 1983–87 were used to evaluate the proposed estimator against the OLS and generalized Scholes and Williams (GSW) alternatives. The absolute difference between the GSW and our estimator, that is the seasonal-induced bias, for NASDAQ stocks was negatively correlated with market capitalization. Moreover, seasonal-induced bias was larger for NASDAQ stocks than more highly capitalized Dow stocks. These empirical findings indicate that seasonals and price adjustment delays can interact to bias estimated systematic risk, where price adjustment delays would be projected to be more acute for smaller capitalization stocks.     

Have European Stocks become More Volatile? An Empirical Investigation of Idiosyncratic and Market Risk in the Euro Area

We examine the dynamics of idiosyncratic risk, market risk and return correlations in European equity markets using weekly observations from 3515 stocks listed in the 12 euro area stock markets over the period 1974–2004. Similarly to Campbell et al. (2001) , we find a rise in idiosyncratic volatility, implying that it now takes more stocks to diversify away idiosyncratic risk. Contrary to the US, however, market risk is trended upwards in Europe and correlations are not trended downwards. Both the volatility and correlation measures are pro‐cyclical, and they rise during times of low market returns. Market and average idiosyncratic volatility jointly predict market wide returns, and the latter impact upon both market and idiosyncratic volatility. This has asset pricing and risk management implications.     

Seeking Capital Abroad: Motivations,Process, and Suggestions for Success

Until fairly recently, the ownership of companies has remained largely with investors in home countries with stocks listed only on domestic exchanges. But a growing number of firms are now raising equity capital on foreign stock exchanges in response to opportunities created by the increasing integration of global capital markets. The authors identify several reasons why seeking capital abroad is an attractive strategy for companies, including greater access to capital, a more liquid share price, easier means of offering employees equity interests in the firm, greater opportunities to make acquisitions, and at least the potential for a stronger reputation and higher valuation, stemming in part from better governance law and greater protection for minority investors in certain jurisdictions. But along with such potential benefits, companies that raise capital abroad also inevitably face liabilities of foreignness (LOF) in their dealings with foreign investors and capital markets. The authors propose a number of ways of minimizing such liabilities, that including signalling the firm's commitment to strengthening its internal governance system, adopting host country business practices, and enlisting the help of reputational intermediaries.     

A SUGGESTED SIMPLE PROCEDURE TO OBTAIN BLUE ESTIMATOR OF GLOBAL BETA

Common stocks are typically traded on numerous exchanges both domestically and internationally. The price behaviour of stocks traded in multimarket settings provides investors with additional information regarding the risk characteristics of those shares. In this paper we provide a simple procedure to obtain the best linear unbiased (BLUE) estimator of relevant systematic risk (beta) of a stock by incorporating as much information as is possibly available in the market place.     

大股东股权质押与上市公司资本运作

资本运作一方面可以提高股价,另一方面可以让公司股票停牌,那么是否会成为大股东度过质押风险的方式呢？基于此,本文以2007—2018年我国A股上市公司为研究对象,考察了大股东股权质押对上市公司资本运作的影响及其作用机制。研究发现:(1)大股东股权质押比例越高,上市公司进行资本运作的可能性越大; 这一关系在质押股权面临的平仓风险越高和非国有控股的上市公司中更为显著。(2)机制检验发现,随着质押比例的提高,上市公司进行资本运作后的停牌时间越长;从股价提升的效果来看,资本运作在短期内能提高股价,缓解质押风险,但从长期来看效果并不显著。(3)上市公司进行资本运作的方式主要为股权转让、资产收购和资产剥离;其中,大股东主要利用资产收购和资产剥离增加停牌时间,利用股权转让助推股价。在控制了潜在的内生性问题影响以及各种稳健性检验下,上述结论仍然成立。     

Global financial services and a global single currency

The purpose of this paper is to highlight the evolution of financial institutions in the context of increasingly volatile foreign exchange markets. The paper discusses the importance of the formation of a single currency in the US in the 19th century and the formation of the Euro in the 20th century for reducing volatility in foreign exchange markets that have assisted financial institutions’ international business expansion. The paper also considers some of the key assumptions of an optimal currency theorem such as labour mobility and argues that in the 21st century, more comprehensive financial market integration and a single global currency could emerge, provided that capital mobility and hence foreign capital flows continue meeting labour in the host countries for production rather than the other way round.     

Price Interactions in a Sequential Global Market: Evidence from the Cross-listed Stocks

In this paper, we investigate the pattern of dynamic interactions among the prices of those stocks that are cross-listed on the three major stock markets of the world, i.e. New York, London and Tokyo. Major findings are: first, regardless of the nationality of stocks, innovations in the 'home' market returns are always fed into the returns in the 'overseas' markets, with the former causing the latter in the Granger sense. However, innovations in the New York market returns of foreign stocks are fed back into their respective home markets, contributing to the price discovery there. Second, the 'succeeding' overseas market, which operates immediately after the home market, plays a dual-role: it conducts the home market innovations to the next-opening overseas market, as well as adds its own innovations. Third, the exchange rate changes substantially influence the overseas market returns, but not the home market returns. The exchange rates appear to play a role in the transmission mechanism mainly via the inter-market price parity.     

An analysis of bank risk and deposit rate ceilings: Evidence from the capital markets

The effect of deposit rate regulation on bank solvency is an important and unresolved issue that has received only limited attention. In this paper, capital market data is used to assess changes in both systematic and non-systematic risk of a portfolio of bank stocks at the time of deposit rate deregulation. The evidence indicates that neither measure of capital market risk is significantly affected, leading to the conclusion that bank solvency risk will not be increased by the deregulation of interest rates on deposits.