Testing Security Spanning, with Application to the Emerging Offshore Yuan Market

Security market integration and spanning failures can arise from differential informational access or from administrative barriers to different types of investor, e.g. onshore versus offshore. However, where sufficient motivation exists, a parallel market could arise, where offshore investors can re-engineer domestic payoffs. Non parametric ordered mean difference and associated conditional expectation profiles can be used to test for residual investor surplus and differential risk profiling. The methods are applied to offshore versus onshore Chinese fixed interest markets, where 'dim sum' bonds and offshore deposits potentially enable investors to reproduce domestic returns. The empirical finding is that segmentation continues to exist, but impacts differently according to the risk profile of the investor