Many companies on China s stock markets have separate, restricted classes of shares for domestic residents and foreigners. Other than who can own them, these shares are identical, but foreigners pay only about one-quarter the price paid by domestic residents. We attribute low Chinese expected returns to the limited alternative investments available in China. We then explore the extent to which various company characteristics can explain cross-company differences in the relative price paid by foreigners.
Several puzzles remain.
For example, we are unable to explain why Chinese investors in Shanghai paid lower prices in 1994 and 1995 for companies with their foreign listings in Hong Kong rather than Shanghai. To comment on this site, please fill out our feedback form.