Market liberalization within a country |
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Authors: | Qian Sun Wilson HS Tong Yuxing Yan |
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Institution: | 1. Institute of Financial and Accounting Studies, Xiamen University, Xiamen 361005, China;2. School of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;3. Wharton Research Data Services, Wharton School, University of Pennsylvania, Philadelphia, PA 19104.6301, United States |
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Abstract: | China's B-share market, which used to be restricted to foreign investors, was partially opened up in February 2001 to Chinese local investors. We take this as a controlled experiment in cross-border trading on a small scale. We find mild but positive effects on the B-share market, with higher volumes, lower levels of volatility, lower bid–ask spreads and more liquidity after liberalization. Between A- and B-shares, price disparities narrowed; the correlation and the co-integration relationships became stronger; and the flow of information became more balanced. More new individual investors entered into the B-share market without crowding out existing institutional investors. Even though the liberalization measure is partial and one-way, it has helped to improve the quality of the B-share market, and our results lend no support to the popular claim that liberalization does nothing but help the existing foreign shareholders to cash out. |
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