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Capital account liberalization and dynamic price discovery: evidence from Chinese cross-listed stocks.
- Source :
- Applied Economics; Feb2016, Vol. 48 Issue 6, p517-535, 19p, 6 Charts, 6 Graphs
- Publication Year :
- 2016
-
Abstract
- We analyse the effects of a recent financial reform (Shanghai-Hong Kong Stock Connect) that enables cross-market investment between Hong Kong and Shanghai stock exchanges. Using a VECM, we find that the reform announcement considerably narrows the equilibrium level of price disparity and strengthens the price comovement of shares that are cross-listed in both markets. The estimated equilibrium relationship is in support of the relative law of one price. We find that both markets adjust in response to a disequilibrium in price disparity, leading to a sizeable error correction activity. The Shanghai market contributes to approximately two-thirds of the price discovery process. Competition and informativeness of trading affect the relative role of price discovery in each market. Finally, the reform implementation reinforces the long-run cointegration relationship and strengthens the short-run price comovements of cross-listed stocks despite the widening price disparity during the period. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00036846
- Volume :
- 48
- Issue :
- 6
- Database :
- Complementary Index
- Journal :
- Applied Economics
- Publication Type :
- Academic Journal
- Accession number :
- 111176695
- Full Text :
- https://doi.org/10.1080/00036846.2015.1083087