How Do Investors Interpret China’s Political Reforms? Empirical Evidence from the Chinese and U.S. Stock Markets

Seungho Lee, Thomas Walker, Aoran Zhang, Yunfei Zhao

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

This paper investigates how Chinese and U.S. investors have interpreted the term limit cancellation of China’s President Xi Jinping on February 26, 2018. By employing a propensity score matching technique and difference-in-differences analysis, we find that Chinese companies listed in the U.S. significantly underperformed compared to their corresponding Chinese firms listed domestically in China. Our empirical analysis provides strong evidence that Chinese and U.S. investors interpret this political event differently. Specifically, the event had a substantial negative impact on the stock returns of Chinese firms listed on American stock exchanges, while it was viewed optimistically by local Chinese investors. In additional analyses, we find that the stock price reactions of our sample firms are influenced by their political connectedness to the government bodies in China. Our paper demonstrates that political events can be interpreted very differently and that investors’ interpretations appear to follow the prevailing political views in a given country.
Original languageEnglish
Title of host publicationCross Country Perspectives in Finance Conference
Publication statusAccepted/In press - 30 Sep 2020
EventCCPF-Journal of International Financial Markets, Institutions and Money (JIFMIM) Symposium: JIFMIM -
Duration: 11 Dec 202013 Dec 2020

Conference

ConferenceCCPF-Journal of International Financial Markets, Institutions and Money (JIFMIM) Symposium
Period11/12/2013/12/20

Keywords

  • presidential term limit
  • term limit cancellation
  • china
  • United States
  • political connections
  • Equity Market

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