Capital Account Reform and Short- and Long-Run Stock Price Leadership

European Journal of Finance, Forthcoming

45 Pages Posted: 6 Oct 2015 Last revised: 12 Oct 2015

See all articles by Charlie X. Cai

Charlie X. Cai

University of Liverpool Management School

Paul Mc Guinness


Qi Zhang


Date Written: July 15, 2015


This paper studies the effect of capital account liberalization policies on the price discovery of cross-listings in Chinese stocks. We construct a non-linear causality framework that decomposes short- and long-run dimensions of price leadership. Our analysis shows that capital account liberalization has had a profound effect on long-run A- and H- price leadership traits. Specifically, increased inward capital movement from Qualified Foreign Institutional Investors (QFIIs) strengthens long-term leadership in the mainland A- market. Similarly, increased capital outflow from the Chinese mainland galvanizes long-term price discovery processes in the Hong Kong H- market. We thus offer strong evidence that capital account liberalization promotes stock market efficiency in the long-run. The present study’s empirical account also suggests that such capital flows inhibit short-term lead-lag effects.

Keywords: Capital account liberalization, A- and H- share cross listings, short- and long-run price leadership

JEL Classification: G01, G15, G18

Suggested Citation

Cai, Charlie Xiaowu and Mc Guinness, Paul and Zhang, Qi, Capital Account Reform and Short- and Long-Run Stock Price Leadership (July 15, 2015). European Journal of Finance, Forthcoming, Available at SSRN:

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Paul Mc Guinness

Independent ( email )

Qi Zhang


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics