Price Premia Of A-B Shares In Chinese Stock Markets

After Chinese B share markets were opened up to domestic investors on 19 Feb 2001, there remained price premia between A and B shares. This paper reviews the performance of A-B share price premia in the 2 Chinese stock exchanges after the event and examines the possible factors sustaining the price difference while market segmentation were eliminated. Empirical evidence shows that B share liquidity may provide one explanation to A-B share price premia as B shares are on the whole not as liquid as A shares, which is in contrast with the finding that A share speculative bubbles strongly influenced the A-B premia before B share markets opened up. The difference between the liquidity of A-B shares and the difference between the speculative components contained in A and B share prices can also have some relationship with the price premia, but both single influences are not strong and clear enough. Besides theoretical factors, it also looks into some possible institutional factors underlying this phenomenon provided the unique institutional background of the Chinese markets. Finally it proposes some solutions for the persistent puzzle of the price premia between A and B shares in the Chinese stock markets.