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The Dual Role of China’s Stock Market: Capital Allocator and Platform for Global Diversification

Jennifer N. Carpenter, Robert F. Whitelaw, Aug 09, 2017

Professors Jennifer Carpenter and Robert Whitelaw, both of New York University’s Stern School of Business, discuss the roles of the China's stock market in improving the efficiency of capital allocation in China and in helping global investors achieve diversification.

The Great Chinese Inequality Turnaround

Ravi Kanbur, Yue Wang, Xiaobo Zhang, Jul 26, 2017

This paper argues that after a quarter century of sharp and sustained increase, Chinese inequality is now plateauing and even turning using various data sources and inequality perspectives. The evolution of inequality is further examined through decomposition by income sources and subgroups. Some preliminary explanations are provided for these trends in terms of shifts in policy and the structural transformation of the Chinese economy.

Daily Price Limits and the Magnet Effect

Ting Chen, Zhenyu Gao, Jibao He, Wenxi Jiang, Wei Xiong, Oct 25, 2017

We find that the widely adopted daily price limit rules may induce large investors as a group to pursue a destructive trading strategy of pushing stock prices to the upper price limit and then profiting from selling these stocks on the next day. Their trading accelerates the price increase on the day that the upper price limit is reached, thus leading to the so-called Magnet Effect. This unintended effect renders the daily price limits — a market stabilization scheme — counterproductive.

How Does the Interaction between China’s Monetary and Regulatory Policies Impact Shadow Banking and Total Bank Credit?

Kaiji Chen, Jue Ren, Tao Zha, Jul 12, 2017

Following the four Trillion RMB fiscal stimulus in 2009, People's Bank of China tightened up its M2 supply. Kaiji Chen, Jue Ren and Zha Tao from Emory University and Federal Reserve Bank of Atlanta explored how the banks reacted to the tightening of M2 supply by expanding shadow banking activities, and how the rapid growth of shadow banking in turn hampers the effectiveness of monetary policy.

The “Trusted-assistant” Loan in Nineteenth Century China

Meng Miao, Guanjie Niu, Thomas Noe, Nov 08, 2017

In this paper, we analyze “trusted-assistant loans,” which were loans issued (typically) by Shanxi Banks during the Qing period to finance newly appointed scholar-officials. Even though creditors lacked legal rights and, in fact, lacked every repayment enforcement mechanism advanced by economic contract theory, repayment rates on these loans were relatively high and they constituted a large and profitable portion of many banks’ loan portfolios. This paper develops a theory of “resource-based” debt contract enforcement that rationalizes repayment and tests the hypothesis of this theory using data from scholar-officials’ diaries and nineteenth century Chinese bank records.