Asset Float and Stock Prices: Evidence from the Chinese Stock Market

摘要

The 2005-2006 reform of the Chinese stock market, aimed at eliminating non-tradable shares, is used to study the role of asset float and liquidity shocks on stock prices. The reform implies that holders of non-tradable shares compensate under various forms (cash, bonus shares, warrants) the holders of tradable shares in exchange for their right to sell their shares at a future time. We exploit a company-level data set to measure the price reaction of each company to both the announcement of the details of the reform and to implementation of the compensation plan, using detailed information about the timing of suspension of each stock from trading and subsequent readmission. We carry out both an event study to measure abnormal returns and analyze price reactions around announcement dates and a cross sectional analysis to explore the determinants of the abnormal returns. We also study the volume and liquidity effects of the reform. The empirical results are interpreted in light of the theoretical model recently presented by Hong, Scheinkman and Xiong (2006), to which the data provide broad support.