Is There A Difference Between Domestic And Foreign Risk Premium? The Case Of China Stock Market

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Frederic Teulon
Khaled Guesmi
Salma Fattoum

Keywords

Asymmetric DCC-GARCH Models, B-Share Discount, Chinese Stock Market, Market Segmentation

Abstract

This article studies the dynamic return and market price of risk for Chinese stocks (A-B shares). A Multivariate DCC-GARCH model is used to capture the feature of time-varying volatility in stock returns. We show evidence of different pricing mechanisms explained by the difference in the expected return and market price of risk between A and B shares. However, the significance of the difference between market prices of risk disappears if GARCH models are used.

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