Chinese Stock Markets: A Research Handbook A Research Handbook

Annotation "The exponential growth of China's stock markets in the past decade has attracted global attention from academics and practitioners. The practitioner's interest in Chinese markets stems from corporations; investors and financial institutions foresee substantial benefits from investing in China in the long run. However, the academic literature on the development of securities markets and reform of state enterprises in China is still in its infancy and fragmented. This handbook aims to bridge that gap by presenting a wide spectrum of research in the forefront of financial applications. It integrates theory and practice with state-of-the-art statistical techniques and provides numerous insights into the main challenges confronting Chinese markets in the new millennium."--BOOK JACKET. Title Summary field provided by Blackwell North America, Inc. All Rights Reserved 9789810245122 9810245122 1 Preface 8 Contents 12 Chapter 1 Development of Chinese Stock Markets 18 1.1 Introduction 18 1.2 Setting the Scene: Shanghai and Shenzhen in the Early Reform Period 20 1.3 The Establishment of Secondary Markets 22 1.4 The Participation of International Investors 28 1.5 The Role of Mutual Funds and Other Institutional Investors 36 1.6 After the Fifteenth National Congress: Increasing Reversal to Capitalism 39 1.7 Problems and Dilemmas 43 Chapter 2 Structural and Institutional Characteristics 50 2.1 Introduction 50 2.2 Regulatory Framework 52 2.2.1 Organizations in Charge 52 2.2.2 Securities Laws and Regulations 55 2.3 Ownership structure 61 2.4 Listing Standards and Procedures 66 2.4.1 Requirements for Stock Listings 66 2.4.2 Procedures for Stock Listing 72 2.5 Market Microstructure 75 2.5.1 Registration of Stock Dealers 75 2.5.2 General Rules for Trading 76 2.5.3 Takeover of Listed Companies 81 2.5.4 Settlement Clearing and Payment System 83 2.5.5 Accounting System 84 2.5.6 Taxes and Fees 87 2.5.7 Suspension and Termination of Listed Companies 89 Chapter 3 Risk Return and Regulation in Chinese Stock Markets 92 3.1 Introduction 92 3.2 Stock-Market Return and Volatility Pattern 93 3.3 Day-of-the-Week Effect 99 3.3.1 Analysis of Variance Approach 99 3.3.2 Moving Average Approach 100 3.4 Market Efficiency Hypothesis 103 3.4.1 Random Walk Hypothesis 103 3.4.2 Cointegration-Based Market Efficiency 107 3.5 GARCH Models 110 3.5.1 Model Specification 111 3.5.2 Characterizing Variance in Chinese Stock Markets 111 3.5.3 World Versus Local Factors in Volatility 113 3.6 Estimation and Empirical Results 114 3.6.1 Model Comparison 115 3.6.2 Parameter Estimates 119 3.7 Government Regulation and Market Volatility 122 3.8 Volatility Asymmetry and Spill-over 128 3.8.1 A Partial Adjustment Model with Asymmetries 130 3.8.2 Asymmetric Behavior on Returns and Volatility 133 3.8.3 Stock-Market Volatility Spill-over Between Mainland China and Hong Kong 135 3.9 Summary 138 Chapter 4 Ownership Restrictions and Foreign Shares Discount 140 4.1 Introduction 140 4.2 Ownership Restrictions in Chinese Stock Markets 142 4.3 A Price Discrimination Model 152 4.3.1 Modeling Ownership Restrictions 152 4.3.2 Investors' Maximization Problems 154 4.3.3 Firms' Maximization Problems 158 4.3.4 Corner Solutions for Domestic Firms' Maximization Problems 161 4.3.5 Relaxing Ownership Restrictions 163 4.4 An Intertemporal Capital Asset Pricing Model 165 4.4.1 Stock Price and Return Dynamics 165 4.4.2 Intertemporal Maximization by Domestic Investors 166 4.4.3 Intertemporal Maximization by Foreign Investors 168 4.5 Testable Implications From the Models 171 4.6 Empirical Results 173 4.6.1 Estimating Betas 173 4.6.2 Errors-in-Variables and Tests for B-share Premiums 176 4.6.3 Idiosyncratic Variance Effect and Firm Size Effect 181 4.7 Summary 182 Chapter 5 Excess Volatility in Domestic Share Markets 186 5.1 Introduction 186 5.2 A Modified Mixture of Distribution Approach 187 5.3 Estimation: Generalized Method of Moments 190 5.4 Data Adjustments 192 5.5 Empirical Results 210 5.6 Cross-Sectional Analysis 217 5.7 Time-Series Analysis 226 5.8 Summary 227 Chapter 6 The Underpricing of Initial Public Offerings 232 6.1 Introduction 232 6.2 The New-issue and Offering Process 234 6.3 The Role of Financial Variables in the Pricing of IPOs 238 6.3.1 The Chinese Data 238 6.3.2 A Benchmark Regression 241 6.4 The Adverse-Selection Models 244 6.5 The Signaling Models 252 6.5.1 Empirical Implications from the Signaling Models 252 6.5.2 Correlation Between IPO Returns and IPO Proceeds 255 6.5.3 Correlations Among IPO Underpricing and Issuer's Intrinsic Value Fractional Ownership and Project Variance 257 6.5.4 IPO Underpricing and SEOs 258 6.6 Bribery and Lottery Hypotheses of IPO Underpricing 263 6.6.1 Bribery Hypothesis: Underpricing of Chinese IPOs are Gifts to Public Officials or Favored Purchasers 263 6.6.2 Lottery Hypothesis: Lottery Mechanism in Share Allocation Contributes to High IPO Underpricing 266 6.7 Underpricing of Foreign-Share IPOs 268 6.8 Long-run Performance of IPOs 273 6.9 Summary 277 Chapter 7 Corporate Governance and Post-IPO Financing 284 7.1 Shareholders' Behavior and Corporate Governance 285 7.1.1 Organizational Structure and Board Composition 286 7.1.2 The Role of Government 287 7.1.3 Ownership Concentration and Firms' Performance 291 7.2 Political Costs and Agency Costs of Equity Financing 294 7.2.1 The Failure of Management Responsibility Contract System 295 7.2.2 Cooperative Shareholding System 296 7.3 Choices of Post-IPO Financing 302 7.3.1 Soft Budget Constraints and The Role of Debt 302 7.3.2 Costs of Equity 306 7.4 The Information Content of Different Financing Choices 312 7.5 Institutional Transformation to Improve Corporate Governance 316 7.5.1 Privatization 316 7.5.2 Denationalization 318 7.5.3 Diversification 319 7.6 Summary 321 Chapter 8 Accounting Information and Stock Performance 324 8.1 Introduction 324 8.2 Roles of Financial Disclosure for Performance Evaluation 326 8.3 Corporate Disclosures Made by Listed Chinese Companies 329 8.3.1 A Brief History of Accounting Development 329 8.3.2 Financial Reporting Practices 331 8.3.3 Capital Market Infrastructure 335 8.4 Stock Returns Around Earnings Releases 337 8.4.1 Information Content Analysis 338 8.4.2 Earnings Announcements and Stock Price Reactions in China 339 8.5 Why Domestic Investors Over-react to Earnings Release? 348 8.5.1 Government and Management as Informed Investors 348 8.5.2 Investors' Sentiments 349 8.5.3 Market Valuation and Transparency 350 Chapter 9 Internationalization of Chinese Stock Markets 352 9.1 Foreign Investment in Domestic B-Share Market 352 9.1.1 Market Microstructure Issues 353 9.1.2 Risks Involved 355 9.2 Overseas Listing of Chinese Stocks 356 9.2.1 Cross-Listing of H-Shares 357 9.2.2 Red Chips Rising 362 9.2.3 Overseas Listing in the U.S. U.K. and Singapore 364 9.3 Concerns That Emerged 369 9.3.1 Market Segmentation and Foreign Exchange Control 371 9.3.2 A Lack of Foreign Participation and Competition in Financial Markets 374 9.4 China Moving Toward World Capital Market: Strategic Issues and Options 376 9.4.1 Enhancing the Interest of Overseas Investors 376 9.4.2 Improving the Role of Financial Intermediaries 378 9.4.3 Introducing Insurance Capital to Securities Market 380 9.4.4 Strengthening China Investment Funds 382 9.4.5 Reforming Pension System 386 9.5 Liberalization of Capital Movements 387 9.5.1 What the Theory Says 388 9.5.2 China's Experience 390 9.5.3 Policy Issues 393 Appendix A Securities Law 398 A.1 Introduction 398 A.2 The Role of the Stock Market 400 A.3 Regulating the Chinese Stock Market 401 A.4 Capital Formation 404 A.5 Securities Trading and Information Disclosure 405 A.6 Acquisitions 407 A.7 Market Infrastructure 409 A.8 Investor Protection 412 A.9 Overseas Markets 414 A.10 The Role of Lawyers 415 A.11 Summary 415 Appendix B Summary of P.R.C. Taxes 418 Appendix C Major Events in Chinese Stock Markets 422 Bibliography 432 Index 442 #,Publisher:,World,Scientific,Publishing,Company,#,Number,Of,Pages:,435,#,Publication,Date:,2003-02-01 # Publisher:,World Scientific Publishing Company,# Number Of Pages:,435,# Publication Date:,2003-02-01