FIN-03-017 |
NYU Stern School of Business |
June 2003
Jianping Mei, José A. Scheinkman and Wei Xiong
ABSTRACT
In this paper we use data from China’s stock markets to analyze non-fundamental
components in stock prices. During the period 1993-2000, several dozen Chinese firms
offered two classes of shares: class A, which could only be held by domestic investors,
and class B, which could only be aded by foreigners. Despite their identical rights, A-share
prices were on average 400% higher than the corresponding B shares. We use a
model of investor overconfidence (Scheinkman and Xiong (2003)) that produces
correlations among prices, turnover, and volatility, to explain this premium. By adopting
a panel regression method, we find that the turnover rate of A shares is able to explain
20% of the cross-sectional variation in A-B share premium. We also conduct various
specification analyses, and examine the relation between float, turnover rate, and
volatility.
Jianping Mei
Institution: Stern School of Business, New York University, 44 West 4th Seet, New York, NY 10012
Telephone: (212) 998-0354
Fax: (212) 995-4233
Email: jmei@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~jmei
José A. Scheinkman
Institution: Department of Economics, Princeton University
Wei Xiong
Institution: Department of Economics, Princeton University
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