Faculty Scholarship 1994 - Present

Bid-Ask Spreads, Holding Periods, and Share Prices in the Market for Chinese A and B Shares

The Chinese stock markets for A (domestic) and B (foreign) shares are completely separated. Our study extends Atkins and Dyl [2] by examing the relationship between holding periods and spreads in the two separated markets. The sample here is a set of 52 firms that simultaneously list A and B shares in 1995. We find that the median holding period of the A shares (1.8 quarter) is substantially shorter than that of the B shares (10 quarters). The median spread of A shares is (0.39%) is also substantially lower than that of B shares (4.77%). Our major findings are as follows. (1) The positive relationship between holding periods and spreads in the U.S. market [2] also exists in the Chinese stock market. (2) The relationship between holding periods and bid-ask spreads is qualitatively the same for A and B shares. (3) The regression analysis indicates that the bid-ask spread is the most important factor in explaining the relative holding period of the A and B shares. However, the B share price discount cannot be explained by the liquidity factor.