Understanding the B-share discounts: exchange risk in the Chinese stock market

Mo Zhang

Research output: Contribution to journalConference articleScientificpeer-review

Abstract

This study investigates the impact of the exchange risk on B-share discount by developing an estimation model to decompose the valuation differential into two components, the difference between the expectation of future exchange rate and spot exchange rate and the difference between A- and B-shares’
expected returns, which both contain the exchange risk. The empirical tests explore that USD and HKD real exchange rates do matters for the B-share markets in SHSE and SZSE on the market level, however,CNY real exchange rate does not affect the A-shares’ expected returns in both stock exchanges. But when moving down to the industry level, the exposures to USD and HKD exchange risk become less obvious.Although it is hard to detect the clear pattern of impacts of real exchange rates on B-share discounts through A- and B-share expected returns, it is quite easy to find the effects of the Changes of exchange
rates CNY/USD and CNY/HKD on B-share discounts. Based on this study, if the investors expect strong CNY in the future, then the B-share discounts will decline.
Original languageEnglish
Non-refereed scientific journalGlobal Conference on Business & Finance Proceedings
Volume8
Issue number1
Pages (from-to)478-486
Number of pages9
Publication statusPublished - 06.01.2013
MoE publication typeA4 Article in conference proceedings
Event2013 Winter Global Conference on Business and Finance (GCBF) - Las Vegas, United States
Duration: 02.01.201305.01.2013

Keywords

  • 511 Economics
  • KOTA2013

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