We perform an event study to investigate the efficiency of the Chinese stock market. We study the reaction of stock returns and trading volumes to the 2005-2006 structural reform which allowed the transformation of non-tradable shares (NTS) into tradable shares (TS) through payment of a compensation to holders of TS. We find evidence of positive abnormal returns in the few days before the announcement of which companies will undergo the reform process and in the ten days after the readmission to trading of participating companies following the determination of the compensation, but no abnormal returns after the payment itself. From a methodological viewpoint, our contribution is the introduction of a bootstrap procedure that is designed to replicate the actual degree of covariance across firms.
Published in 2016 in: Quarterly Review of Economics and Finance, v. 60, pp. 125-137
