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The cross-border impacts of China’s official rate shocks on stock returns of Chinese concepts shares listed on U.S. market
2020-02-22 18:39:00

GDP | Global Development Perspective

Working Paper No. 20.001

Feb.21, 2020

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The cross-border impacts of China’s official rate shocks
on stock returns of Chinese concepts shares listed on U.S. market

Dong Weijia

 

Abstract: This paper examines a new cross-border effect of an emerging country’s interest rate changes on the stock returns of its domestic firms listed overseas. First, we discover that the increase in China’s official interest rate greatly affects the NYSE-listed Chinese stocks, thereby suggesting that similar to Chinese domestic investors, the institutional investors in a mature market sometimes exhibit irrational sentiment driven by an emerging economy’s unexpected monetary policy shocks. Second, we highlight some novel asymmetric impacts of China’s official rate changes on Chinese concepts stock prices and reveal that these effects differ from the conventional nonlinear effects of monetary policies. For instance, a bull and bear regime has no statistically significant asymmetric effect on NYSE, whereas interest rate rise has different cross-border impact on Nasdaq and NYSE markets. These interesting findings are mainly driven by the smart investors in the U.S. stock market who are knowledgeable about the differences between NYSE- and Nasdaq-listed stocks and carefully analyze the different impacts of China’s official interest rate changes on the fundamentals of different types of Chinese concepts stocks.

Key words: China’s official interest rate shocks; Cross-border impacts; Chinese concepts shares; Event study

1.Introduction
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2.Literature review
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3.Data and methodology
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4.Empirical results
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5.Conclusions
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