Segmentation of the Chinese Stock Market: A Review

The Chinese stock market is segmented in threefold. First, firms may have multiple issues that are denominated in different currencies. Due to difficulties in arbitrage, stocks listed on the domestic segment usually trade at a premium over those on the foreign segment. Second, stocks are traded on different market segments. Each segment imposes different listing requirements on firms and varying entry restrictions on investors. Third, a predominant portion of shares used to be nontradable. This split-share structure, while largely dismantled by the 2005 reform, is not yet fully eliminated. In this paper, we provide a detailed account of the literature on the three aspects and emphasize how market segmentation affects the stock pricing of Chinese firms. We also offer critical comments on the caveats of the extant studies and propose some topics for future research.