This paper studies trading and prices of dual/cross-listed stocks (i.e., equities from a single company that trade in more than one country). We focus on PRC rms with shares listed in Shanghai and Hong Kong. well-publicized index tracks the average price disparity across the two exchanges and shows signicant variation over time. We show that dierences in order imbalances (in Shanghai vs Hong Kong) explain contemporaneous changes in relative prices at daily and weekly frequencies. Our results help clarify liquidity-driven explanations from sentiment-based ones.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversified. We then explore several possible mechanisms through which property rights protection may affect firm diversification.

The purpose of this thesis is to provide an exposition of the theories underpinning the term structure of interest rates in relation to empirical literatures; also it aims to address the implications for the shape of the yield curve to with regard to its predictive ability of economy’s future direction.

A fundamental question in finance is whether and how removing market frictions is associated with efficiency gains. We study this question using share issue privatization in China that took place through the split share structure reform. Prior to the reform, domestic A-shares were divided into tradable and non-tradable shares with identical cash flow and voting rights. Under the reform, holders of the non-tradable shares negotiated a compensation plan with holders of the tradable shares in order to make their shares tradable. We hypothesize that efficiency gains in terms of better risk sharing play an important role in the determination of compensation. We show that the size of compensation is positively associated with both the gain in risk sharing and the price impact of more shares coming to the market after the reform, and is negatively associated with the bargaining power of holders of non-tradable shares and firm performance. Our study highlights the role of risk sharing in China’s share issue privatization.

It is well documented that bond excess returns are time-varying and that they can be explained by predetermined risk factors. This paper builds a theoretical model to forecast excess returns on treasury bonds in the context of China’s unique monetary system. Empirical evidence shows that bond excess returns in China are highly predictable when compared to those in developed markets. Further investigation suggests that the predicted components are primarily driven by the inflexible term structures of official interest rates set by China’s central bank.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversi?ed. We then explore several possible mechanisms through which property rights protection may affect firm diversification.

With a sample of 504 IPO issuers over a period of 2002-2008 in China, this paper studies a previously ignored issue by examining the relationship between pre-IPO earnings management and underwriter reputation for issuers with different level of marketization. We document that underwriter reputation is negatively related to pre-IPO earnings management only if the issuer is highly marketized. Specifically, we find a significantly negative relationship between pre-IPO earnings management and underwriter reputation if the issuer is a non-state-owned enterprise (NSOE) issuer, a small-size issuer, or is listed on the Small and Medium Enterprise (SME) Board. No significant association is found for the state-owned enterprise (SOE) issuers, the large issuers, or Main Board issuers. We argue that the results are driven by the fact that issuers in the NSOE, small-sized, or SME market segment have more incentives to signal their earnings quality to avoid adverse selection by the investors, and/or reputable underwriters are more influential over their clients in mitigating earnings management.

The current study documents an interesting phenomenon that retail investors prefer to invest in stocks listed at the stock exchange that is geographically close to them in China. This pattern is robust when we control for the well-documented local bias within a country. Among companies with similar distances to both stock exchanges, investors still display a much stronger tendency to invest in locally-listed companies. Among stocks with similar distances to both stock exchanges, those listed in Shanghai (Shenzhen) co-move more in returns and volume, with the benchmark at the Shanghai (Shenzhen) stock exchange. Such a preference for local exchange seems not to be motivated by information advantage, because investors do not obtain abnormal returns from their trades on stocks listed nearby. Our findings provide additional evidence that non-information-based familiarity bias induces investment and that such investor biases and exchange-level sentiment influence asset price formation.

China launched her warrant market in August 2005 in the split share structure reform of listed companies. As up to now, equity trading on margin and short-sale of any form are still prohibited in China. This warrant market enables investors to trade on information that otherwise might be prohibitively expensive to trade on. The Chinese warrant market created top trading volume and turnover with only a handful of different warrants traded. This paper first studies the Chinese warrant market. Empirical evidence shows that the market prices of warrants are much higher systematically than the Black-Scholes prices with historical volatility. Moreover, the paper documents ample evidence that the one-dimensional diffusion model does not apply well in the Chinese warrant market. The prices of a warrant and its underlying asset do not support the monotonicity, perfect correlation and option redundancy properties. The paper also studies the cumulated gains of a delta-hedged warrant portfolio. In the Chinese warrant market, the cumulated delta-hedged gains for almost all expired warrants are negative. The negative gains are mainly driven by the volatility risk, and the trading values of the warrants for puts and the market risk for calls. The investors are trading some other risks in addition to the underlying risk.

Current integration and co-movement among international stock markets has been boosted by increased globalization of the world economy, and profit-chasing capital surfing across borders. With a reputation as the fastest growing economy in the world, China’s stock market has continued gaining momentum during recent years and incurred growing attention from academicians, as well as practitioners. Taking into account economic and geographical considerations, the US and Hong Kong are considerably the most comparable stock markets to China. As the usual vector error correction model (VECM) could overlook the long memory feature of cointegration residual series, which can in turn exert bias on the resulting inferences, we chose to employ a fractionally integrated VECM (FIVECM) in this paper to investigate the long-term cointegration relations binding China’s stock market to the aforementioned stock markets. In addition, by augmenting the FIVECM with multivariate GARCH model, the return transmission and volatility spillover between market return series were revealed simultaneously. Our empirical results show that China’s stock market is fractionally cointegrated with the two markets, and it appears that China’s stock market has stronger ties with its neighboring Hong Kong market than with the world superpower, the US market.