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We examine the short-term effects of the liberalization of the Chinese stock market on returns. We find a positive and significant abnormal return associated with the announcement of the liberalization of the Shanghai Stock Exchange. Exploiting  features of the reform, we are able to compare stocks directly and indirectly affected by the liberalization. We find that all stock prices reflect this announcement premium equally, suggesting that the premium does not reflect an increase in expected liquidity. We further find that observed liquidity, as measured by volume and price impact, did not increase following the liberalization. We conclude that the observed premium reflects a diversification benefit for Chinese investors.