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

摘要

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.