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Panel Cointegration of Chinese A and B Shares

Report
Authors N. Ahlgren
B. Sjö
Jianhua Zhang
Publisher Göteborg University
Place of publication Göteborg
Publication year 2008
Published at Centre for Finance
Department of Economics
Language en
Links hdl.handle.net/2077/9996
Keywords Chinese A and B shares, Market segmentation, Information flow, Panel unit root and cointegration tests
Subject categories Economics

Abstract

In this paper we study market segmentation and information flows in China's stock markets. By using panel data methods we test for a unit root in the price premium of domestic investors' A shares over foreign investors' B shares as well as cointegration between the prices of the A and B shares on the Shanghai and Shenzhen stock exchanges. We find that the A-share premia are nonstationary and the A- and B-share prices are not cointegrated up till January 2001. After February 2001, when domestic investors were allowed to trade B shares, the A-share premia become stationary and the A- and B-share prices cointegrated. Our findings suggest that the relaxation of the investment restrictions decreased the information asymmetry betwen the A- and B-share markets in China.

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