Faculty Scholarship 1994 - Present
Liquidity, Holding Periods, and Share Prices: The Case of 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 by examining the relationship between holding periods and spreads in the two separate 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 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 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 taht the bid-ask spread is the most important factor in explaining the relative holding period of A and B shares. Overall, we feel that the results provide strong support for the theoretical arguement fo Amihud and Mendelson that stocks with higher spreads tend to be held by long-term investors. However, the B share price discount cannot be explained by the liquidity factor.