Stock Liquidity and the Pricing of Earnings: A Comparison of China's Floating and Non-Floating Shares

31 Pages Posted: 7 Oct 2013 Last revised: 14 Oct 2013

See all articles by Fang Lou

Fang Lou

Shanghai University of Finance and Economics - School of Economics

Jiwei Wang

Singapore Management University - School of Accountancy

Hongqi Yuan

Fudan University - School of Management

Date Written: October 2013

Abstract

The reform to convert non-floating shares to floating in China provides a setting in which shares are subject to different liquidity constraint. We show that the severity of this constraint is inversely related to the extent to which earnings information is reflected in the share prices. Specifically, before the reform, the transfer prices of non-floating shares reflect much less earnings information than the market prices of floating shares. After the reform, however, both types of transfer reflect more earnings information, although the weights are still less than that found in the market prices. Thus, China's unique setting shows that share liquidity affects the way earnings are priced in stock.

Keywords: Stock Liquidity, Pricing, Earnings, China

JEL Classification: G12, G15, G32, M41

Suggested Citation

Lou, Fang and Wang, Jiwei and Yuan, Hongqi, Stock Liquidity and the Pricing of Earnings: A Comparison of China's Floating and Non-Floating Shares (October 2013). Emerging Markets Finance and Trade, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2336002

Fang Lou

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

Jiwei Wang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore
(65) 6828 0616 (Phone)
(65) 6828 0600 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/jwwang/

Hongqi Yuan

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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