This study investigates the relation between CEO turnover and firm performance in China's listed firms. The study examines how the sensitivity of CEO turnover to firm performance is moderated by the private control of firms, the presence of a majority shareholder and the presence of independent directors on the board. Using a panel of about 1200 Chinese firms per year from 1999 to 2006 we find significant changes in the ownership and control of firms. The private control of firms and the fraction of independent directors on the board have increased considerably over time. The study finds a significant negative association between CEO turnover and firm performance consistent with the agency model. There is evidence that the CEO turnover sensitivity for poor performance is greater in firms that are privately controlled, or have a majority shareholder, or have a greater fraction of independent directors on the board.

This paper estimates switching autoregressive conditional heteroskedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China’s currency forwards markets upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes.

We examine the wealth effects of three regulatory changes designed to improve minority-shareholder protection in the Chinese stock markets. Using the value of a firm's related-party transactions as an inverse proxy for the quality of corporate governance, we find that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. This evidence indicates that securities-market regulation can be effective in protecting minority shareholders from expropriation in a country with weak judicial enforcement. We also find that firms with strong ties to the government did not benefit from the new regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where block holders have strong political connections.

This paper provides a theoretical analysis of return and volatility spillover effects between developed and emerging futures markets with investment obstacles. It mainly focuses on analysis of the effects on equilibrium futures price, investors’ trading strategies and their wealth distributions in the emerging market. Three hypotheses are proposed. The first two assume that there is either return or volatility spillover between the two markets. The last one combines the first two together by assuming that there are both return and volatility spillovers between the markets. Our analysis results show that the equilibrium futures price, investors’ trading strategies and their wealth distributions in the emerging futures market are affected by (1) the scale of informed traders in the emerging market who form their expectations of delivery price by using the spillovers from the developed market, (2) the spillovers degree that the informed in the emerging market expect, and (3) whether there is return spillover or volatility spillover, or both. Overall, the findings suggest that if there are both return and volatility spillovers, then ignoring the volatility spillover, investors will make improper investment decisions so that the futures contracts could be overpriced and the traders’ wealth could be harmed. The theoretical analysis provide an important implication for empirical examination on the spillover effects between markets, that is, both return and volatility spillover effects should be considered jointly, otherwise the return spillover effects can be overestimated. Empirical examination in copper futures markets generally supports the conclusions drawn from our theoretical analysis.

We investigate considerations (compensations) paid in on-going Division Reform, a process of releasing trading constraint, in China Stock Market, and link this event with existing literature of restricted asset by inferring implied illiquidity discount of restricted shares from consideration. We also propose a new measure of restriction capturing multiple dimensions of restriction finding it together with the scale of restriction well explain the ratio of considerations and the implied illiquidity discount. We also use theoretical models to justify the 20% implied illiquidity discount and find it is below the 48.67% upper bound suggested by Longstaff (1995) and it falls within the range between 12.18% and 23.82% suggested by Lonstaff (2001) concluding the considerations paid in Division Reform is adequate and relative wealth of two classes of shareholders remains after the trading constraint released.

It is documented that technical analysis is a highly pervasive activity among stock traders and security analysts in China. This paper uses eight years’ data on daily stock prices and trading volume of thirty-nine companies listed on the Shenzhen Stock Exchange to examine the usefulness of technical analysis. Very weak evidence in support of return predictability is generated either by considering returns alone or by the use of volume in conjunction with returns. The results not only cast doubt on the ability of technical analysis to predict future price movements in China’s stock markets, but also challenge the views of market inefficiency for China that are based on aggregate market data rather than individual company data.

Researchers have developed a number of theories to explain stock return continuation. Using stock data from 16 emerging markets (1990 to 2002), we conduct an out-of-sample test for the sources of momentum profitability. This paper examines the role of financial analyst in the exhibited stock return continuation among emerging markets. Consistent with the predictions of the gradual information diffusion theory (Hong and Stein, 1999), the evidence indicates that momentum strategies are most profitable in small firms, firms with low analyst coverage. More interestingly, we find that besides the level of analyst following, the change in analyst following, specifically, increasing analyst coverage, and the analyst forecasts with high dispersion can help explain stock return momentum.

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.

The Chinese stock market has grown very rapidly, but is often distorted by government regulation, and this is especially true for the initial public offering market. The average underpricing of Chinese IPOs is 247 percent, the highest of any major world market. We model this extreme underpricing with a demand-supply analytical framework that captures critical institutional features of China’s primary market, and then empirically test this model using a sample of 1,397 IPOs listed on the Shanghai and Shenzhen Stock Exchanges between 1991 and 2004. The pricing of IPO shares is subject to a cap set by the government, and the supply of IPO shares allowed on the market is also set by the government through the Chinese quota system. The government regulator even controls the timing of flotation of shares onto the stock exchange--after the initial public offering is executed--and there is usually a long time lag between the IPO and the actual listing of shares for trading. A special feature of the Chinese IPO market is that the government is by far the largest issuer. In our sample, 66 percent of the IPOs in our sample are pure share issue privatizations (SIPs), in which the government sells part of its ownership in state-owned enterprises (SOEs) to the public; fully 88 percent would be considered privatizations under a more expansive definition that included state-connected owners. Insider theft of corporate assets is also a big concern of IPO subscribers in China, and IPO shares must also be discounted for significant tunneling risks. We find that insider shareholdings are a negative determinant of initial returns. We suggest that investment risks in China's primary markets are greater than in other new issues markets, and these risks partly explains the extreme levels of Chinese IPO underpricing. However, the principal cause of the this underpricing is government regulation. The supply restricting measures traditionally adopted by the Chinese regulatory authorities turn IPO shares into hot commodities, which are fiercely bid for, and this leads to corruption and a reallocation of wealth from firms and investors to politically connected individuals and groups.

This paper studies sequential portfolio choices by MPS-risk-averse investors in a continuous time jump-diffusion framework. It is shown that the optimal trading strategies for MPS risk averse investors, if they exist, must be located on a so-called `temporal efficient frontier' (t.e.f.). The t.e.f. is found not to coincide with the local instantaneous frontier --- the continuous time analogue of Markowitz's mean-variance frontier. This observation is potentially useful in understanding the existence of documented financial anormally in empirical finance --- MPS risk averse investors may not wish to invest along the local instantaneous Markowitz's mean-variance frontier, but instead hold portfolios on the t.e.f.. The optimal portfolio on the t.e.f. could well fall strictly within the instantaneous local Markowitz's efficient frontier. Our observations on mutual fund separation are also profound and interesting. In contrast to the classical two-fund separation along the line of Black (1972) and Tobin (1958), our study shows that MPS-risk-averse investors' optimal trading strategy is target rate specific. Precisely, investors with different target rates may end up investing into different managed mutual funds, each involving a specific set of separating portfolios. Our theoretic findings are, nevertheless, much in line with the real world phenomena on the existence of various types of mutual funds offered by different financial institutes, each aiming to attract demand from some specific groups of investors --- a picture that is in sharp contrast to the theoretical prediction made by Black (1972) and Tobin (1958). Finally, our study sheds light on the difference between expected utility and MPS-risk-averse investors concerning their trading behavior in sequential time frame. Even though these two groups of investors may end up holding a common risky portfolio in each spot market, the differences between their trading behaviors are most reflected through the portfolio weights assigned to each of the separating portfolios within the time frame and across states. Precisely, the portfolio weights corresponding to investors respectively from the two groups are associated with recognizable different time patterns. We showed that such difference in trading behavior would be also reflected from the time patterns of the instantaneous returns and the volatilities of the funds respectively managed by investors from these two groups.