The eect of market segmentation on stock prices: The China syndrome
نویسنده
چکیده
China has an A-share market that is open only to local investors and a B-share market that is open only to foreign investors. Contrary to what has been observed in other markets with a similar segmented structure, the China B shares trade at a discount relative to the A shares. We show that the phenomenon can still be explained by basic economic principles. Speci®cally, the existence of the H-share and the ``red-chip'' markets in Hong Kong provide good substitutes for the B-share market. We ®nd that when more H shares and red chips are listed in Hong Kong, the B-share discount becomes larger. This is consistent with the model of dierential demand elasticity proposed by Stulz and Wasserfallen (Stulz, R., Wasserfallen, W., 1995. Review of Financial Studies 8, 1019±1057). Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: G10; G15
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