China's new millennium financial liberalization programs: Economic risks to the Chinese retail investor

M. Audrey Costabile, Fordham University

Abstract

This paper provides a detailed history and evolution of four new millennium liberalization programs implemented in China between 2003 and 2006: Non-tradable share reform, the Qualified Foreign Institutional Investor (QFII) program, the Renminbi currency revaluation, and the Qualified Domestic Institutional Investor program. The run-up of the A Share bubble and subsequent crash are attributed to a lack of cohesion between programs as well as investor perception. Retail investors were found to be negatively impacted in the long run. ^ Chinese stock and bond markets have a rich history dating back to the Qing dynasty. An in-depth overview of each market is discussed as well as liquidity and diversification issues resulting from a small number of tradable assets available to the public. An efficient portfolio analysis is provided to test the benefits of diversification into international equity markets and is compared to baskets of Chinese assets. Results reveal that Chinese investors are not compensated for additional risk when confined to local assets. ^

Subject Area

Economics, Finance

Recommended Citation

M. Audrey Costabile, "China's new millennium financial liberalization programs: Economic risks to the Chinese retail investor" (January 1, 2008). ETD Collection for Fordham University. Paper AAI3353766.
http://fordham.bepress.com/dissertations/AAI3353766

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