Yue-Cheong Chan

Political risk and stock price volatility: The case of Hong Kong

Abstract In this paper, we study the impact of political news on the stock market volatility in Hong Kong. Two indices are used: blue-chip shares are proxied by the Hang Seng Index, and China-related stocks are proxied by the Red-Chip Index. The results indicate that political news increases the stock volatility of both blue-chip and red-chip shares. Also, we find that favorable (unfavorable) political news is correlated to positive (negative) returns for the Hang Seng Index. In contrast, political news, good or bad, does not affect the returns of the red-chip shares. We employ a substitution effect to explain our findings and conclude that red-chip stocks can be considered a safe haven from political shocks for investors in Hong Kong.

Price and volume effects associated with derivative warrant issuance on the Stock Exchange of Hong Kong

Abstract This paper examines the price and volume effects of underlying stocks around the announcement date of derivative warrants issued in Hong Kong. In general, the results indicate that underlying stocks are subject to extra buying pressure a few days before the new derivative warrant issuance, which is consistent with our hypothesis about the hedging effect created by the merchant banks that initiate the warrant issuance. Since the prices of underlying stocks peak on the first day after the warrant announcement and are stable thereafter, the information effect associated with the warrant issuance appears to be weak and does not last long. In addition, we find that underlying stocks have abnormal increases in price and volume during the last 5 minutes of trading on the warrant issuance day. This might be due to investors’ buying behavior precipitated by information leakage about the successful warrant issuance and/or to the price manipulation by merchant banks in order to attain a better payoff from the warrant issuing business.

Price volatility in the Hong Kong stock market: a test of the information and trading noise hypothesis

Abstract The Hong Kong stock market had about five years of no afternoon trading session on Wednesday in the 1980’s. This paper makes use of this special feature in testing among public information, private information and trading noise hypothesis. We examine the effect on interday volatility, intraday volatility and the trading volume when there is no afternoon trading on Wednesday. The results indicate that the interday and intraday volatility as well as the trading volume decrease on Wednesday but increase on Thursday. The evidence is therefore consistent with the private information, but not with the public information or trading noise hypothesis.

Privatizing water supply in Hong Kong

Abstract With the exception of the water supply industry, all major utilities in Hong Kong are owned and operated by private enterprises. In terms of price, returns, and productivity, the water supply industry in Hong Kong compares unfavourably with privately-owned utilities. The financial performance of the Water Supplies Department has been deteriorating in recent years. In order to improve the performance of the water supply industry, the Hong Kong Government should consider inviting the private sector to run the industry. Hong Kong can learn from other countries with regard to reforms made in the water supply industry.