China’s Financial System: Opportunities and Challenges

We provide a comprehensive review of China’s financial system, and explore directions of future development. First, the financial system has been dominated by a large banking sector. In recent years banks have made considerable progress in reducing the amount of non-performing loans and improving their efficiency. Second, the role of the stock market in allocating resources in the economy has been limited and ineffective. We discuss issues related to the further development of China’s stock market and other financial markets. Third, the most successful part of the financial system, in terms of supporting the growth of the overall economy, is a non-standard sector that consists of alternative financing channels, governance mechanisms, and institutions. The co-existence of this sector with banks and markets can continue to support the growth of the Hybrid Sector (non-state, non-listed firms). Finally, among the policies that will help to sustain stable economic growth in China are those that reduce the likelihood of damaging financial crises, including a banking sector crisis, a real estate or stock market crash, and a “twin crisis” in the currency market and banking sector.

Financing Healthcare Services for the Poor

This paper was written as part of Shujog Research's Financial Innovation for Poverty Reduction Series. It studies the challenges and gaps in the funding of healthcare provision in Asia, and evaluates several innovative financing solutions that can help countries achieve the goal of universal access to healthcare

A Political Theory of the Chinese Stock Market

The Chinese stock market crash of 2015 attracted much attention from both the media and academia. Yet it was not a unique incident. The Chinese stock market fluctuates more frequently and drastically than most mature stock markets. The purpose of this work is to explain these unusual stock market fluctuations through a political lens. Traditional financial models and behavioral finance cannot sufficiently explain the unusual fluctuations of the Chinese stock market. Traditional financial models find that economic forces cannot explain all fluctuations in China’s stock market. Behavioral finance attributes the fluctuations to investor’s irrational behavior without explaining why investors behave more irrationally than other investors. Other explanations, like financial knowledge and the immature market arguments cannot sufficiently explain the fluctuations of Chinese financial markets. A common characteristic of previous literature is a lack of real political explanations. This work develops a political explanation of the Chinese stock market, with an emphasis on biased financial institutions. Biased financial institution are the result of state-owned enterprises’ interest and political influence, and cause behavioral changes in investors and the market environment. Drastic market fluctuations serve as a channel for market forces to input their interests into political system. In reaction to these unusual market fluctuations, the Chinese government adjusts institutions to make concessions to private capital and to stabilize the market. Market fluctuations are the key force behind the Chinese government’s institutional development. Three case studies will illustrate this theory: non-tradable share reform, circuit-breaker institution, and the international board. These cases demonstrate how Chinese institutional design conforms to the interest of state-owned enterprises, introduces bias, and shows how the government uses the reform process to make concessions

A Transaction Governance Perspective on Business Entertainment: A General Model and Evidence From China

Despite the prevalence of business entertainment in economic life, nearly all studies on the phenomenon have explored it from a social perspective by labeling it as a social vice. Although a few scholarly works have identified the role of business entertainment in facilitating exchange relationships; none of them has offered a systematic explanation of how business entertainment plays such a role. Meanwhile, despite some scholars’ recognition of the role of social sanctions in regulating economic activities, virtually none of them has explored the relationship between social sanctions and business entertainment. This dissertation aims to bridge these gaps by arguing that business entertainment plays a governance role by reinforcing social sanctions to regulate economic transactions. Drawing on theories from the literatures on economics, business management, anthropology, sociology, and psychology, I start with the proposition that each society during its evolution forms a transaction governance structure (TGS) featuring a unique combination of market, social, and legal sanctions in regulating economic relationships. Depending on their social and cultural heritages, some societies rely more on social sanctions, and others more on legal sanctions, to compensate for the failure of market sanctions. I further argue that underdeveloped market and legal infrastructures are associated with prevalent practice of business entertainment because the latter plays a role in reinforcing social sanctions that supplement market sanctions. These arguments set up a theoretical framework for systematically explaining the social practice of entertainment in business settings from a perspective of economic transaction governance. To verify the above arguments, I derived two sets of hypotheses and conducted two empirical tests within the Chinese context: one to predict the pervasiveness of business entertainment at the firm level, using secondary data collected from firms listed on the Shanghai Stock Exchange in China; the other to test the effectiveness of business entertainment at the transaction level, with primary survey data collected from a sample of Chinese corporate client sales managers. Statistical results from both tests provide support for my transaction governance approach to business entertainment

Changing Features of the Automobile Industry in Asia:Comparison of Production, Trade and Market Structure in Selected Countries

The global automotive industry, increasingly characterized by global mergers and relocation of production centers to emerging developing economies, is in the grips of a global price-war. The industry is subject to imperfect competition which has resulted in too much of everything — too much capacity, too many competitors and too much redundancy and overlap. The industry is concerned with consumer demands for styling, safety, and comfort; and with labor relations and manufacturing efficiency. In this context, the study examines the growth patterns, changes in ownership structures, trade patterns and role of governments of selected Asian countries (viz. China, India, Indonesia and Thailand) in the automobile sector.Automobile, Asia, Market Structure

Empirical studies of financial and labor economics

This dissertation consists of three essays in financial and labor economics. It provides empirical evidence for testing the efficient market hypothesis in some financial markets and for analyzing the trends of power couples’ concentration in large metropolitan areas. The first chapter investigates the Bitcoin market’s efficiency by examining the correlation between social media information and Bitcoin future returns. First, I extract Twitter sentiment information from the text analysis of more than 130,000 Bitcoin-related tweets. Granger causality tests confirm that market sentiment information affects Bitcoin returns in the short run. Moreover, I find that time series models that incorporate sentiment information better forecast Bitcoin future prices. Based on the predicted prices, I also implement an investment strategy that yields a sizeable return for investors. The second chapter examines episodes of exuberance and collapse in the Chinese stock market and the second-board market using a series of extended right-tailed augmented Dickey-Fuller tests. The empirical results suggest that multiple “bubbles” occurred in the Chinese stock market, although insufficient evidence is found to claim the same for the second-board market. The third chapter analyzes the trends of power couples’ concentration in large metropolitan areas of the United States between 1940 and 2010. The urbanization of college-educated couples between 1940 and 1990 was primarily due to the growth of dual-career households and the resulting severity of the co-location problem (Costa and Kahn, 2000). However, the concentration of college-educated couples in large metropolitan areas stopped increasing between 1990 and 2010. According to the results of a multinomial logit model and a triple difference-in-difference model, this is because the co-location effect faded away after 1990

DIRECT AND INDIRECT BARRIERS TO ARBITRAGE: EVIDENCE FROM HONG KONG LISTED CHINA’S SHARES

Arbitrage lies in the core of many finance theories. It eliminates any mispricing and brings prices to fundamental values, keeping markets efficient. In reality, however, there exist various barriers to arbitrage that deter potential arbitrageurs from correcting the relative mispricing in a timely manner. While the existence and consequences of some direct barriers, such as capital controls and short-sales restriction, are evident and straightforward, other barriers are less obvious and indirect in nature but with the same effect of discouraging arbitrage activity. This paper investigates the role of various direct and indirect barriers to arbitrage in the persistence of relative mispricing with a sample of shares listed both on Hong Kong Stock Exchange and one of China’s stock exchanges. Time-series and cross-company fluctuations in price difference of the sample of cross-listed shares are investigated. It is found that the reduction of direct barriers has a significantly negative impact on the aggregate level of pricing difference, and that direct and indirect barriers to arbitrage can explain collectively 54% of the cross-sectional variation in pricing difference. The estimates are significant even after controlling for firm size, listing year and performance. The findings in this paper provide an alternative explanation for China’s foreign share discount, especially for the persistence of relative mispricing. This study also sheds lights on the pricing of noise trader risk argued in Lee, Shleifer & Thaler (1991) but proved otherwise in empirical studies. Specifically, the result confirms the notion that both idiosyncratic and systematic risk matter in arbitrageurs’ positions, particularly when the markets under concern are relatively segmented.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format

An empirical study on the Chinese A-share: value stocks vs. growth stocks

This paper compares the performance of value and growth strategy in the Chinese A-share markets in the post-reform period. The cumulative performance of annually rebalanced value and growth portfolio sorted by book-to-value ratio indicate that value strategy outperforms growth strategy over the time frame from January 2007 to October 2017. One can also observe a weak average value premium of 0.44% to 0.45% per month. However, the rolling window analysis indicates that the value premium in the A-share market is not robust over different time frames and investment horizons. As the time frame and investment duration vary, value strategy fails to outperform consistently. There no strong evidence to support a robust short-term or long-run advantage of value strategy. The weak and inconsistent value effect could be a result of the short horizon of the sample as there are only 129 months totally in the post-reform period. More importantly, the very strong speculative sentiment in the A-share markets is likely to be the cause for the weak value premium. Besides, another value metric, EBIT/Enterprise value, is compared with the book-to-market ratio. The results show that value portfolio sorted by book-to-market ratio has better performance than value portfolio sorted by EBIT/Enterprise value ratio

Visibility graph analysis of crude oil futures markets: Insights from the COVID-19 pandemic and Russia-Ukraine conflict

Drawing inspiration from the significant impact of the ongoing Russia-Ukraine conflict and the recent COVID-19 pandemic on global financial markets, this study conducts a thorough analysis of three key crude oil futures markets: WTI, Brent, and Shanghai (SC). Employing the visibility graph (VG) methodology, we examine both static and dynamic characteristics using daily and high-frequency data. We identified a clear power-law decay in most VG degree distributions and highlighted the pronounced clustering tendencies within crude oil futures VGs. Our results also confirm an inverse correlation between clustering coefficient and node degree and further reveal that all VGs not only adhere to the small-world property but also exhibit intricate assortative mixing. Through the time-varying characteristics of VGs, we found that WTI and Brent demonstrate aligned behavior, while the SC market, with its unique trading mechanics, deviates. The 5-minute VGs' assortativity coefficient provides a deeper understanding of these markets' reactions to the pandemic and geopolitical events. Furthermore, the differential responses during the COVID-19 and Russia-Ukraine conflict underline the unique sensitivities of each market to global disruptions. Overall, this research offers profound insights into the structure, dynamics, and adaptability of these essential commodities markets in the face of worldwide challenges.Comment: 16 pages, 10 figure

Bubbles or cycles? Housing price dynamics in China’s major cities

Based on the monthly data of 35 cities during the period 2006−2017, this study adopts a recursive forward looking method to detect the presence of housing bubbles and investigate their potential cyclical patterns in China’s large and medium sized cities. Empirical results show that the number of cities reporting housing bubbles has been increasing since 2013, before it declined in 2017. Regarding regional disparities of housing bubbles, 1st-tier and 1.5-tier cities have higher probability than 2nd-tier cities for housing bubbles. In general, eastern region cities have more housing bubbles than central and western region cities, which may indicate the problem of shrinking cities China is facing nowadays. Bubble signals for market correction in major cities and municipalities seemed alarming in particular for the period 2013−2016, however it is difficult to conclude if the market adjustment in 2017 indicates a cyclical pattern. First published online 19 December 201