توضیح اختلاف نوسانات بین سهام داخلی و خارجی در بازار بورس چینی

Return volatility is found significantly higher for the foreign shares (B shares) than for the domestic shares (A shares) traded in the Chinese stock markets. To explain this volatility disparity, we investigate the bid–ask spreads and estimate the market-making costs (informed trading and noninformed trading costs) for each stock. Our results show that the B-share market in China contains higher informed trading and other market-making costs than the A-share market. When informed trading and other cost components are accounted for, the volatility disparity between the A and B shares disappears. Thus, the higher volatility in the B-share market can be attributed to the higher market-making costs faced by B-share traders.

In many emerging stock markets, foreign investors face restrictions on owning domestic shares. It is widely documented that ownership restrictions result in price differentials among classes of shares. Bailey and Japtiani (1994) find that foreign investors generate significant price premiums over domestic investors, using data from the Stock Exchange of Thailand. Stulz and Wasserfallen (1995) construct a demand function to explain why shares available to foreign investors sell at a premium, using data from Switzerland. Foerster and Karolyi (1999) test foreign stocks listed in the United States, and their results support both market segmentation and investor recognition hypotheses. Recently, Bekaert and Harvey (2000) and Henry (2000) report positive reactions in a country's equity market to important market reforms such as reducing foreign ownership restriction and relaxing currency control. China has tightly restricted foreign stock ownership throughout the 1990s. The ownership restriction creates two distinct groups of investors: the domestic and foreign investors. Class A shares are domestic shares and Class B shares are foreign shares. During the early and mid-1990s, B shares were traded at a discount relative to A shares, and B-share returns were higher than A-share returns. Su (1999) explains the return premiums on the foreign-owned B shares in the Chinese stock markets by testing a one-period capital asset price model (CAPM). He concludes that foreign investors are more risk-averse than domestic investors. Sun and Tong (2000) explain the price discount of the B shares by differential demand elasticity. They document that when more H shares and red chips are listed in Hong Kong, the B-share discount becomes larger. In addition, Chui and Kwok (1998) show that the returns on B shares lead the returns on A shares, which induces an asymmetric positive cross-autocorrelation between the returns on B and A shares. They argue that A- and B-share investors have different access to information, and information often reaches the B-share market before it reaches the A-share market. The Chinese stock markets have grown very rapidly during the 1990s.1 The recent rapid development may affect the risk and return of A- and B-share classes. In this paper, we re-examine the return and volatility patterns of the A and B shares in the Chinese stock markets by using daily data. Our study provides two interesting findings: (1) the daily returns of domestic shares (A shares) and foreign shares (B shares) are almost identical in the late 1990s, while previous studies find that the B-share returns are much higher than the A-share returns during the mid-1990s; (2) the volatility of B-share daily returns is higher than that of A shares, while previous studies have often documented higher return volatility for A shares.2 Since A and B shares are entitled to the same cash flows of a firm and have similar returns, the higher return volatility of B shares is puzzling. The market microstructure theory suggests that both volatility and bid–ask spreads are positively related to asymmetric information (see Easley et al., 1996 and Kyle, 1985). According to this theory, higher volatility is caused by higher degree of information asymmetry and participation rate of informed traders in the market, which, in turn, lead to higher trading costs. Thus, the higher volatility of B shares may be due to a more severe asymmetric information problem in the B-share market. If so, we should observe higher trading costs for B shares. Furthermore, Easley et al. (1996) show that spreads and volatility are negatively related to liquidity. Since the order-processing cost is the cost of providing liquidity and immediacy, lower liquidity results in higher order-processing cost and higher volatility. A recent study by Green, Maggioni, and Murinde (2000) on the London Stock Exchange shows that changes in transaction costs have a significant effect on share price volatility.3 Moreover, Chordia, Roll, and Subrahmanyam (2002) document that return volatility is significantly related to quoted spreads. These findings confirm the theoretical prediction that volatility and trading costs are positively correlated. To explain the volatility disparity between the A and B shares in the Chinese markets, we analyze the difference in trading behaviors of the A- and B-share investors, and examine the relationship between return volatility and trading costs. The higher volatility in the B-share market may reflect higher idiosyncratic risk (rather than higher systematic risk) of B-share stocks. The trading risk associated with asymmetric information can be diversified away and therefore it is not systematic risk (see Chordia et al., 2002). Asset pricing models (e.g., the Capital Asset Pricing Model and the Arbitrage Pricing Theory) suggest that expected returns should be determined by systematic risk. Since higher volatility does not necessarily imply higher systematic risk, it may not be accompanied with higher returns. Su (1999) finds that market risk (measured by market betas) can explain returns of A and B shares, but nonmarket risk variables, such as the variance of returns and firm size, do not systematically affect returns. Thus, the difference in return volatility between the A- and B-share markets may be caused by the difference in idiosyncratic risk. Trading costs, which reflect asymmetric information and liquidity of trading, may explain the B-share market anomaly. For example, if B-share investors incur higher trading costs than A-share investors, the return volatility of B shares would be higher than that of A shares, other things being equal. In this paper, we investigate whether the A- and B-share investors in the Chinese markets incur different trading costs and face different degrees of information asymmetry. In particular, we examine whether the difference in trading costs (or market-making costs) can explain the difference in return volatility between the A and B shares. We estimate the end-of-day bid–ask spread and its informed trading and noninformed trading cost components for each stock using daily data in the late 1990s. Our results show that the B-share market has persistent higher bid–ask spreads than the A-share market, and traders in the B-share market bear higher informed trading and other transaction costs. Furthermore, we find that the higher volatility of B-share returns can be attributed to the higher market-making costs in the B-share market. The remainder of the paper is organized as follows. Section 2 discusses the data and preliminary test results on return and volatility. Section 3 discusses the mechanism of the Chinese stock exchanges, measurement for market-making costs, and empirical methodology. Section 4 presents empirical results. Finally, Section 5 summarizes the findings of this paper.

In many emerging stock markets, foreign investors face restrictions on owning domestic shares. It is widely documented that ownership restrictions result in price differentials among classes of shares. Bailey and Japtiani (1994) find that foreign investors generate significant price premiums over domestic investors, using data from the Stock Exchange of Thailand. Stulz and Wasserfallen (1995) construct a demand function to explain why shares available to foreign investors sell at a premium, using data from Switzerland. Foerster and Karolyi (1999) test foreign stocks listed in the United States, and their results support both market segmentation and investor recognition hypotheses. Recently, Bekaert and Harvey (2000) and Henry (2000) report positive reactions in a country's equity market to important market reforms such as reducing foreign ownership restriction and relaxing currency control. China has tightly restricted foreign stock ownership throughout the 1990s. The ownership restriction creates two distinct groups of investors: the domestic and foreign investors. Class A shares are domestic shares and Class B shares are foreign shares. During the early and mid-1990s, B shares were traded at a discount relative to A shares, and B-share returns were higher than A-share returns. Su (1999) explains the return premiums on the foreign-owned B shares in the Chinese stock markets by testing a one-period capital asset price model (CAPM). He concludes that foreign investors are more risk-averse than domestic investors. Sun and Tong (2000) explain the price discount of the B shares by differential demand elasticity. They document that when more H shares and red chips are listed in Hong Kong, the B-share discount becomes larger. In addition, Chui and Kwok (1998) show that the returns on B shares lead the returns on A shares, which induces an asymmetric positive cross-autocorrelation between the returns on B and A shares. They argue that A- and B-share investors have different access to information, and information often reaches the B-share market before it reaches the A-share market. The Chinese stock markets have grown very rapidly during the 1990s.1 The recent rapid development may affect the risk and return of A- and B-share classes. In this paper, we re-examine the return and volatility patterns of the A and B shares in the Chinese stock markets by using daily data. Our study provides two interesting findings: (1) the daily returns of domestic shares (A shares) and foreign shares (B shares) are almost identical in the late 1990s, while previous studies find that the B-share returns are much higher than the A-share returns during the mid-1990s; (2) the volatility of B-share daily returns is higher than that of A shares, while previous studies have often documented higher return volatility for A shares.2 Since A and B shares are entitled to the same cash flows of a firm and have similar returns, the higher return volatility of B shares is puzzling. The market microstructure theory suggests that both volatility and bid–ask spreads are positively related to asymmetric information (see Easley et al., 1996 and Kyle, 1985). According to this theory, higher volatility is caused by higher degree of information asymmetry and participation rate of informed traders in the market, which, in turn, lead to higher trading costs. Thus, the higher volatility of B shares may be due to a more severe asymmetric information problem in the B-share market. If so, we should observe higher trading costs for B shares. Furthermore, Easley et al. (1996) show that spreads and volatility are negatively related to liquidity. Since the order-processing cost is the cost of providing liquidity and immediacy, lower liquidity results in higher order-processing cost and higher volatility. A recent study by Green, Maggioni, and Murinde (2000) on the London Stock Exchange shows that changes in transaction costs have a significant effect on share price volatility.3 Moreover, Chordia, Roll, and Subrahmanyam (2002) document that return volatility is significantly related to quoted spreads. These findings confirm the theoretical prediction that volatility and trading costs are positively correlated. To explain the volatility disparity between the A and B shares in the Chinese markets, we analyze the difference in trading behaviors of the A- and B-share investors, and examine the relationship between return volatility and trading costs. The higher volatility in the B-share market may reflect higher idiosyncratic risk (rather than higher systematic risk) of B-share stocks. The trading risk associated with asymmetric information can be diversified away and therefore it is not systematic risk (see Chordia et al., 2002). Asset pricing models (e.g., the Capital Asset Pricing Model and the Arbitrage Pricing Theory) suggest that expected returns should be determined by systematic risk. Since higher volatility does not necessarily imply higher systematic risk, it may not be accompanied with higher returns. Su (1999) finds that market risk (measured by market betas) can explain returns of A and B shares, but nonmarket risk variables, such as the variance of returns and firm size, do not systematically affect returns. Thus, the difference in return volatility between the A- and B-share markets may be caused by the difference in idiosyncratic risk. Trading costs, which reflect asymmetric information and liquidity of trading, may explain the B-share market anomaly. For example, if B-share investors incur higher trading costs than A-share investors, the return volatility of B shares would be higher than that of A shares, other things being equal. In this paper, we investigate whether the A- and B-share investors in the Chinese markets incur different trading costs and face different degrees of information asymmetry. In particular, we examine whether the difference in trading costs (or market-making costs) can explain the difference in return volatility between the A and B shares. We estimate the end-of-day bid–ask spread and its informed trading and noninformed trading cost components for each stock using daily data in the late 1990s. Our results show that the B-share market has persistent higher bid–ask spreads than the A-share market, and traders in the B-share market bear higher informed trading and other transaction costs. Furthermore, we find that the higher volatility of B-share returns can be attributed to the higher market-making costs in the B-share market. The remainder of the paper is organized as follows. Section 2 discusses the data and preliminary test results on return and volatility. Section 3 discusses the mechanism of the Chinese stock exchanges, measurement for market-making costs, and empirical methodology. Section 4 presents empirical results. Finally, Section 5 summarizes the findings of this paper.