Title: Asset pricing, jump risk, and China's B-share discount puzzle

Authors: Haigang Zhou; John Qi Zhu

Addresses: Department of Finance, Cleveland State University, Cleveland, OH 44115-2214, USA ' Department of Finance, School of Management, Fudan University, Shanghai 200433, China

Abstract: This study examines whether differential systematic risks, along with other competing explanations, account for cross-sectional variations in B-share discounts in China, using both cross-sectional and panel data analysis. Results show strong evidence that variations in A-share systematic risks are positively related to variations in B-share discount after controlling for various competing explanations. No evidence shows a correlation between variations in B-share systematic risks and variations in B-share discounts. These findings survive various robustness checks. The study further decomposes total systematic risk into continuous and jump components. Regression results indicate that variations in B-share discounts are explained mostly by variations in systematic continuous risk but not by variations in systematic jump risk.

Keywords: asset pricing; jump risk; China; B-share discounts; realised volatility; Brownian; financial services management; systematic risks; continuous risk.

DOI: 10.1504/IJFSM.2013.059609

International Journal of Financial Services Management, 2013 Vol.6 No.4, pp.352 - 366

Received: 13 Sep 2013
Accepted: 06 Jan 2014

Published online: 02 Mar 2014 *

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