This paper empirically models China’s stock prices using conventional fundamentals: corporate earnings, risk-free interest rate, and a proxy for equity risk premium. It uses the estimated long-run stock price misalignments to date booms and busts, and analyses equity market reforms and excess liquidity as potential drivers of these stock price misalignments. Our results show that China’s equity prices can be reasonable well modelled using fundamentals, but that various booms and busts can be identified. Policy actions, either taking the form of deposit rate changes, equity market reforms or excess liquidity, seem to have significantly contributed to these misalignments.

This paper assesses the impact of the severe acute respiratory syndrome (SARS) on the stock market of China. Our results indicate that the Chinese stock market reacts rapidly to the SARS epidemic. We provide strong empirical evidence that the epidemic has an immediate impact on the pharmaceutical and tourism industries. In particular, pharmaceutical companies are benefited from the outbreak of SARS, while the tourism sector is adversely affected. Our results imply the existence of a profitable trading rule during an epidemic.

We investigate, for China’s investable companies, the relation between stock returns and firm characteristics, and the impacts on the relation of the 2001-2003 financial reforms to further liberalize stock markets. For the first time in the literature, we document coexistence of a positive size effect and a growth effect, and the importance of liquidity and positive earnings for returns; and we also show that they underwent a structural break upon the reforms. These results are robust across 12 alternative panel model specifications with different ways of estimating and controlling for the market beta, different proxies for market portfolios, the problem of outliers considered, and the January effect allowed for.

This study examines the relationships between three Northeast Asian stock markets of China, Japan, and Korea during the period between January 1, 2000 and September 30, 2010, with particular attention placed on the global financial crisis period. The findings of this study are as follows. Firstly, China is influenced more by regional markets rather than the global market. On the other hand, Japan is influenced more by the global market rather than regional markets. Korea has the most balanced level of integration between the regional and global markets. Secondly, a portfolio created through an integrated market in the region would result in a significant decline in the unsystematic risk of each country, benefiting both the investor and local economies. Thirdly, the recent global financial crisis has caused a shift in the pattern of integration in the region. All three countries show a higher level of integration with the global market after the financial crisis. Finally, for China, the global market risk has become even greater than the domestic unsystematic risk since 2010. Overall result suggests that the degree of integration among countries tends to change over time, especially around periods marked by financial crisis and there is a diversification benefit of integrated regional market.

The forecast ability of term structure is tested in this paper with the data of interbank treasury yield curve of Chinabond. The results show that there are positive relationships between term structure and the changes of future macro economy, i.e. GDP, consumption, production and inflation, which is similar with the studies of the developed countries. The term structure can predict the mid-term economic growth well, even considering the effects of monetary policy and another leading indicator. With the regression results, the out-of-sample predictions show a lower and decreasing growth rate in the next two years, implying greater challenges to the policy-makers.

Volume of real estate market in some China’s large cities decreased sharply in 2010. Based on rational reconstruction of some basic economic thought and analytical narrative of the real estate price bubble ,I conclude that it should be contributed to a big gap between demand and supply, and financial crisis would break out in the coming few month in China. I make proposal that government should be reducing state-owned share.

We investigate the impact of strategic investors on bank efficiency in the context of regional economic development. The data on Chinese city commercial banks operating regionally are well-suited for the study. Findings suggest that strategic investors significantly increase efficiency in Chinese city commercial banks; the impact of strategic investors on the efficiency of Chinese city commercial banks is negatively correlated to the level of regional economic development. The negative correlation of the impact of strategic investors on Chinese city commercial banks’ efficiency with regional economic development may be explained by the mix of the local official promotion system and the city commercial banks’ governance structure.

We examine the impact of corporate ownership structure on the value of excess cash in Chinese listed firms. We find that the value of excess cash is less in firms controlled by private investors than in those firms controlled by the government. One dollar of excess cash is valued a $0.36 in firms controlled by private investors while it rises to $0.42 in firms controlled by the government. Furthermore, we show that the expropriation of the controlling shareholders is significantly and positively related with the previous year’s excess cash in firms controlled by private investors while it is insignificant in firms controlled by the government. These findings are consistent with the view that private controlling shareholders have the greater ability to extract private benefit in cash holdings.

What are the effects of policy reversals which were initiated by the US bureaucracy in response to the 2008 global financial crisis? Answering this question is challenging because US capital markets are relatively mature and policy reversals are far and in between in recent years. Specifically, the challenges include the one-time nature of these US policy reversals, the confounding effects of many programs targeting interrelated segments of the capital markets at the same time as well as possible endogeneity issues. China, on the other hand, offers a natural experiment to study the effects of policy reversals. In the last three decades, the Chinese government has initiated many policy changes to liberalize the capital markets and some of these have been reversed several times. Using hand-collected data of policy reversals targeting the Chinese stock markets from 1994 through 2009, we are able to address the first two challenges. To resolve any endogeneity issue, we focus on the impact of such policy reversals (targeted at the Chinese stock markets) on the Chinese repo markets, which trade market-driven interest rates. We find that the Chinese policy reversals are indeed effective in reducing the term spread, the volatility of the interest rate, and the volatility of the term spread. Our results suggest that the policy risk is systematically priced in financial securities, implying that policy makers can rely on financial market indicators to objectively evaluate their policy decisions.

What are the effects of policy reversals which were initiated by the US bureaucracy in response to the 2008 global financial crisis? Answering this question is challenging because US capital markets are relatively mature and policy reversals are far and in between in recent years. Specifically, the challenges include the one-time nature of these US policy reversals, the confounding effects of many programs targeting interrelated segments of the capital markets at the same time as well as possible endogeneity issues. China, on the other hand, offers a natural experiment to study the effects of policy reversals. In the last three decades, the Chinese government has initiated many policy changes to liberalize the capital markets and some of these have been reversed several times. Using hand-collected data of policy reversals targeting the Chinese stock markets from 1994 through 2009, we are able to address the first two challenges. To resolve any endogeneity issue, we focus on the impact of such policy reversals (targeted at the Chinese stock markets) on the Chinese repo markets, which trade market-driven interest rates. We find that the Chinese policy reversals are indeed effective in reducing the term spread, the volatility of the interest rate, and the volatility of the term spread. Our results suggest that the policy risk is systematically priced in financial securities, implying that policy makers can rely on financial market indicators to objectively evaluate their policy decisions.