This study adopts the Markov-switching ARCH (hereafter SWARCH) model to examine the volatility nature and volatility linkages of four segmented Chinese stock indices (SHA, SZA, SHB, and SZB). Our empirical findings are consistent with the following notions. First, we find strong evidence of regime shift in the volatility of four segmented markets and SWARCH model appears to outperform standard GARCH family models. Second, although there are some common features of volatility switch in segmented markets, there exist a few difference: (i)compared with the A-share markets, B-share markets are more volatile and shift more frequently between high- and low-volatility states; (ii) B-share markets have longer stays at high volatility state than the A-share markets; (iii) the relative magnitude of the high volatility compared with that of the low volatility is much greater than the case in two A-share markets. Third, B-share markets are found to be more sensitive to international shocks, while the A-share markets seem immune to international spillovers of volatility. Finally, analyses of volatility spillover effect among the four stock markets indicate that the A-share markets play a dominant role in volatility in Chinese stock markets.

Two motivations of internal financing in business groups are studied using Chinese data: cross-financing to relieve severe financing constraints, and expropriation from minority shareholders in environments with weak corporate governance. We document the existence of both, and discuss their implications on both the efficiency and magnitude of intra-group financing. We find that, from the business group perspective, the internal capital market is most efficient when the groups are well governed and have a pressing need to mitigate external financing constraints.

This paper investigates the potential benefits of international diversification with short selling constraints from the perspective of Chinese investors. Based on a stream of time-rolling realized portfolios, we show that Chinese investors can gain substantially from international investments. In particular, the expected portfolio returns as well as the risk-adjusted returns can be greatly enhanced by diversifying over emerging markets, and the portfolio risk can be largely reduced by investing in developed markets in comparison with purely domestic investments. The results are robust when the out-of-sample tests are employed and when investors start with a more mean-variance efficient domestic portfolio. In addition, our analysis illustrates that optimal portfolio weights vary significantly over time due to fluctuations in the correlations among international markets, suggesting that international portfolios need to be rebalanced frequently in order to generate the greatest possible diversification benefits.

Based on detailed trade records of individual investors who participated in both China’s A- and B- share markets, we find investors are more likely to buy A (B) shares when the A-share premium is lower (higher), when they have already held the same firm’s A (B) shares and when they have previously traded the same firm’s A (B) shares. Given that the correlation between the same firm’s A and B shares is below 70% and that A shares are more expensive, it is sensible for investors to invest more into the B shares. Our evidence suggests that investors accept a less than optimal portfolio due to lack of investment experience.

This study examines the effects of different dimensions of financing constraints (financial market development, governance environments, ownership control and other firm-specific characteristics) on cross-border mergers and acquisitions (M&As) for all takeover bids announced in nine East Asian economies from 1998 to 2005. The results of logistic regressions verify that the extent of stock market and governance developments encourages cross-border M&As in this region. The results also indicate that firm-specific financing constraints, except the ownership control variables, reduce the occurrence of cross-border M&As related to domestic M&As. Although family- and state-controlled firms have better access to external financing, they are reluctant to risk diluting their management control and thus prefers less cross-border M&As to domestic M&As. This study enhances the empirical studies of the financing constraint-investment relation based on the market imperfection theory in corporate finance theories. Information asymmetry is the main reason causing the market imperfection and leading to financing constraints to corporate investments. This study, by examining the relation over nine East Asian firms, thus provides an understanding of how such a relation fits in the firms in countries where information asymmetry is high.

We examine the effects of government ownership on the change in valuation and the uses of proceeds of firms after they raise equity funds – the time when the agency problems of free cash flows are larger. We find that investors generally react more negatively to an equity offering decision by a company whose government ownership is higher. Firms generally increase cash dividend payments after offering equity, and firms with extremely high government ownership increase cash dividends more than other firms do. Further analysis shows that investors react more negatively to an offering decision if they expect the issuer to increase cash dividends post-offering. Our study suggests agency problems exist in equity offerings in China, and firms tunnel resources by offering shares to the public followed by an increase in cash dividends.

Using the data of privately-owned firms in China’s transition economy, we examine the effects of soft budget constraint on the expropriation of minority shareholders. We find that, compared to small firms, large firms have higher bank loans and are more likely to get government subsidies. However, large firms show higher divergence between cash flow and control rights, more fund occupation by controlling shareholders, and lower market valuation. Moreover these differences between large and small firms become particularly pronounced when the firms operate in the provinces with poorer fiscal conditions. These findings suggest that soft budget constraint can mitigate the expropriation costs of controlling shareholders, and subsequently deteriorates the expropriation of minority shareholders.

Efficient portfolio is a portfolio that yields maximum expected return given a level of risk or has minimum level of risk given a level of expected return.However,the optimal portfolios seem not being as efficient as intended.Especially during financial crisis period.optimal portfolio is not an optimal investment as it does not yield maximum return given a specific level of risk,vice and versa.One possible explanion for an unimpressive performance of the seemingly efficient portfolio is incorrectness in parameter estimates called"estimation risk in parameter estimates".Five different estimating strategies are employed to explore ex post portfolio performance when estimation risk is incorporated.These strategies are traditional mean-variance(EV),Adjusted Beta(AB) approach,Capital Asset Pricing Model(CAPM),Single Index Model(SIM), and Single Index Model incorporating shrikage Bayesian factor namely Bayesian Single Index Model(BSIM).Among the five alternative strategies,shrinkage estimators incorporating the single index model outperforms other traditional portfolio selection strategies.Allowing for asset mispricing and applying Bayesian shrinkage adjusted factor to each asset's alpha,a single factor namely excess market return is adequate in alleviating estimation uncertainty. JEL：G320

We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the “privatization premium” found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off. We argue that this results from the absence of a Chinese political transition to accompany economic reforms, so that the positive effects on profits of political ties through government ownership outweigh the potential efficiency costs of government shareholdings. Companies with former government officials in management have positive abnormal returns, suggesting that personal ties can substitute for the benefits of government ownership. In both cases, we may rule out explanations based on a supply effect of the share sales. We further find that the “privatization discount” is higher for firms located in Special Economic Zones, where local government discretionary authority is highest, And that companies with relatively high welfare payments to employees, which presumably would fall with privatization, benefit disproportionately from the privatization announcement.

With the expansion of multinational corporations (MNCs), the alarming upsurge in widely publicized and notable corporate scandals involvingMNCs in emerging markets has begun to draw both academic and managerial attention to look beyond home market practices to the pressing concern of CSR in emerging markets. Previous studies on CSR have focused primarily on Western markets, reserving limited discussions in addressing the issue of MNC attitudes and CSR practices in their emerging host markets abroad. Despite this incongruity in academic response to CSR in emerging markets, managers of multinational companies continue to face mounting and most often conflicting pressures to weigh among multiple strategic CSR responses in emerging markets. Such a task is often further complicated by the complexity of varying business norms and standards, regulatory environments, and stakeholder demands for CSR across national boundaries. With such a challenge in mind, I attempt to examine the explanatory factors in leading MNCs, otherwise recognized for accountability and integrity in their home markets, to employ inconsistent or negligent practices under CSR pressure in Chinese emerging economy. Preliminary findings reveal that discrepancies exist in how MNCs perform in CSR in home countries versus in host countries. While MNCs do have much to improve, the institutional environment in the emerging market, including the legal framework and the ethical culture, also needs to be improved by the host country governments, the industry associations, and local firms. Meanwhile, media interest and journalists, NGOs, third party monitors, industry stakeholders as well as consumer advocacy groups can raise the visibility of MNC’s contradictory practices between their origin nations and countries with emerging economies and offer the pressures and incentives for MNCs to amend their ethical shortcomings. This article also suggests implications for both theory and practice.