A effects of market liberalizations on return, risk, and co-movement of China's a- and B-Share stock markets

Abstract

This paper investigates the effects of the two major market liberalization policies on price behavior of China's A- and B-share markets, namely the opening of the B-share market in February 2001 and the approval of the QFII scheme in. November 2002. We examine the announcement effects of two liberalization policies, the mean price discount, the cointegration relationship between the A- and B-share stock markets and the volatility pattern. The empirical results show that the opening of the B-share market has a significant influence on the return, risk, and co-movement relationship of the A- and B-share stock market while the QFII scheme does not have obvious impacts. We infer that this phenomenon may result from the government's interference or the role of QFII in the China's A-share stock market. The results support the view that liberalization of stock markets leads to overall improvement in the quality of the markets.