Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.intfin.2008.12.003
Title: Speculative trading and stock returns: A stochastic dominance analysis of the Chinese A-share market
Authors: Fong, W.M. 
Keywords: Arbitrage
Market efficiency
Market segmentation
Stochastic dominance
Issue Date: 2009
Source: Fong, W.M. (2009). Speculative trading and stock returns: A stochastic dominance analysis of the Chinese A-share market. Journal of International Financial Markets, Institutions and Money 19 (4) : 712-727. ScholarBank@NUS Repository. https://doi.org/10.1016/j.intfin.2008.12.003
Abstract: The pricing of A-shares in China has long puzzled financial economists. This paper applies recent tests of stochastic dominance (SD) to examine whether differences in the return distributions of A- and B-shares in China are consistent with market efficiency. As SD is nonparametric, market efficiency can be examined without the joint test problem arising from misspecifications in the asset pricing benchmark. Our results show A-shares have second-order dominated B-shares from 1996 to 2005. This dominance was most significant during the market segmentation period, but has continued, albeit to a lesser extent even after the B-share market was opened to local investors in 2001. Our results are robust to using residual returns from an international asset pricing model instead of raw returns. We conclude that the superior performance of A-shares cannot be attributed to risk. The results are more likely due to a return bias caused by intense speculation among retail individuals under limited arbitrage. © 2009 Elsevier B.V. All rights reserved.
Source Title: Journal of International Financial Markets, Institutions and Money
URI: http://scholarbank.nus.edu.sg/handle/10635/44432
ISSN: 10424431
DOI: 10.1016/j.intfin.2008.12.003
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