Theoretical Study On B Share Discount Peroblem

Since the Shanghai and Shenzhen stock market and STAQ stock market was founded in the December of 1991, Chinese stock market has become a major part of Chinese socialist market economy after 10 years of extraordinary development. But compared to the Chinese stock market as a whole, B share market, which is also a very important sub-market of Chinese stock market, has experienced a much slower, twisted and rough development. Since the first B share went to the market on Feb 21st 1992, B share market was formally founded and has celebrated its 11th birthday. But compared to A share market, which was almost founded the same time, B share market was left far behind no matter from the prospect of market scale, development speed and expanding ability. Of all the disfigurements above to B share market, the most important and obvious embodiment is the B share discount problem, which can be commonly seen among B share companies.The severe B share discount problem has not only lead to a paralysis of market expanding mechanism, but also has beaten and injured the passion and enthusiasm of market participants, which has in turn endangered the persistent development of B share market. What's more, the severe B share discount problem has become one of the major obstacles of the future integration of A and B share market. It had a direct influence on China's internationalization process after its entry into WTO, which would eventually become an un-ignorable factor that condition the development of the whole Chinese stock market. Therefore, we need to systematically and thorough research into the actuality, causations and solutions of B share discount problem. This study does not only matter how the B share market can get through current situation and be integrated with A share market, but also has very important theoretical and practical meaning to China's integration and internationalization process after its entry into WTO.The object we study is the B share discount phenomenon, which happened during the year 1991 to 2004. The aim of this study is to bring forward our own independent theoretical explanation to the cause of B share discount. First, we bring a detailed review on international B share discount and stock market segmentation literature, and point out the definition and investigative value of B share discount. Second, we give a comprehensive summarize on the actuality of B share discount problem, and further bring forward our independent theoretical explanation to the true cause of B share discount problem. Third, this essay constructs a three-stage theoretical asset pricing model on heterogeneous expctation under market segmentation to prove our point of views. Fourth, by using great deal of historical data of A, B and H share market we then design several statistical test methods to prove the validity of the theoretical model. At last we give some operational suggestions for B share discount problem of Chinese stock market.Because of historical and institutional reason, the Chinese stock market was under severe A,B, and H share market segmentation ever since it was constructed.Since investors can not eliminate asset prcing difference through croos market arbitration, the stock prices of Chinese companies which were dual listed in A, B, and H share stock market would not comply with the one price law, which is the essential precondition of the B share discount problem. Under this precondition, a series of institutional disfigurement appear in the market orientation, the issue system, the exchange system, the information disclosure system, the capital structure and the quality of listing company, which in turn result in the B share market's liqudation problem, A share speculation, information asymmetry, risk difference. That is the important causation for the B share discount problem in Chinese stock market.The theoretical explanation to the cause of B share discount of this essay can be generalized as:First, the B share discount problem is a complicated and systemic issue under the idiosyncratic condition of China's A and B share market segmentaiton. It is the synthetical result of a series of institutional disfigurement in the market orientation, the issue system, the exchange system, the information disclosure system, the capital structure and the quality of listing company, of Chinese stock market. The B share discount problem is interrelated with many discount factors as the B share market's liqudation problem, A share speculation, information asymmetry, risk difference.Second, the B share discount problem is actually a relative conception, which consist of "B share discount" and "A share premium".Of all the B share discount hypothesis, the liquidation hypothesis and A share speculation hypothesis are the dominating factors to the formation and alteration of B share discount problem. The B share market liquidation problem is the main reason for the devaluation of B share(B share discount), where as the speculation problem is the main reason for the overvaluation of A share(A share premium).These two factors jointly determine the extent, character and trend of B share discount phenomenon.