Capital account reform and short- and long-run stock price leadership

Cai, C.X.; McGuinness, P.B.; Zhang, Q.

Abstract

This paper studies the effect of capital account liberalization policies on the price discovery of cross-listings in Chinese stocks. We construct a non-linear causality framework that decomposes short- and long-run dimensions of price leadership. Our analysis shows that capital account liberalization has had a profound effect on long-run A- and H-price leadership traits. Specifically, increased inward capital movement from Qualified Foreign Institutional Investors strengthens long-term leadership in the mainland A-market. Similarly, increased capital outflow from the Chinese mainland galvanizes long-term price discovery processes in the Hong Kong H-market. We thus offer strong evidence that capital account liberalization promotes stock market efficiency in the long-run. The present study's empirical account also suggests that such capital flows inhibit short-term lead-lag effects.

Citation

Cai, C., McGuinness, P., & Zhang, Q. (2015). Capital account reform and short- and long-run stock price leadership. European Journal of Finance, 23(10), 916-945. https://doi.org/10.1080/1351847x.2015.1105272

• Journal Article Type: Article
• Acceptance Date: Oct 2, 2015
• Online Publication Date: Nov 3, 2015
• Publication Date: Nov 3, 2015
• Deposit Date: Dec 3, 2015
• Publicly Available Date: May 3, 2017
• Journal: European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 23
• Issue: 10
• Pages: 916-945
• DOI: https://doi.org/10.1080/1351847x.2015.1105272
• Keywords: Capital account liberalization, A- and H-share cross-listings, Short- and long-run price leadership, G01, G15, G18.
• Public URL: https://durham-repository.worktribe.com/output/1396935