CROSS-MARKET TRADING IN CHINA'S LARGE STATE-OWNED COMMERCIAL BANKS, 2006–2011

Authors

  • RICHARD C. K. BURDEKIN,

    1. Burdekin: Jonathan B. Lovelace Professor of Economics, Claremont McKenna College, Claremont, California, CA 91711. Phone 909-607-2884, Fax 909-621-8249, E-mail rburdekin@cmc.edu
    Search for more papers by this author
  • YANG (AMANDA) YANG

    1. Yang: Research Analyst, Macroeconomic Advisers, LLC, Washington, DC 20006. Phone 202-521-0302, Fax 202-449-6715, E-mail amandayangyang@gmail.com
    Search for more papers by this author
    • The authors are grateful to James Barth, William Brown, and two anonymous referees for helpful comments and thank Yijing Shen for invaluable research assistance. Marc Weidenmier and the Lowe Institute of Political Economy kindly helped fund this student-faculty research project begun while Yang Yang was a Baker-Lowe Scholar at Claremont McKenna College.


Abstract

This paper examines the differential between the share prices of China's large state-owned commercial banks traded in Shanghai versus prices observed in Hong Kong. We find a significant role for investor sentiment, as reflected in relative price-earnings ratios, in explaining these price differentials for all four banks. The share price in Shanghai tends to move ahead of the share price in Hong Kong when more positive sentiment in Shanghai makes local investors willing to pay more for the same predicted earnings. We also identify common trends in relative bank price-earnings ratios and price differentials across the two markets. (JEL G14, G15)

Ancillary