The Puzzle of the AH Price Disparity of Chinese Dual Listed Companies

Download or read book The Puzzle of the AH Price Disparity of Chinese Dual Listed Companies written by Nicolo Angerer and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, the well-known AH share price disparity in the Chinese financial market is tackled by analysing dual listed companies with outstanding A-shares listed on a Chinese stock exchange, as well as outstanding H-shares on the Hong Kong stock exchange. Despite the capital liberalization efforts of recent years and against the theories of classical finance, A-shares with identical voting and dividend rights are on a weighted average around 30% more expensive than their counterpart H-shares. The objective is to analyse the established explanations for this share price disparity by employing several multiple regressions on 63 stock pairings over the time horizon of 2006 - 2016. The paper at hand differs from existing research in terms of a lower degree of segmented markets due to most recent liberalization efforts and therefore a different regulatory environment, and furthermore a longer time horizon and a higher number of available stock pairings. The paper concludes that A-share premiums can partially be explained by differences in required returns due to differences in risk and volatility of the two share types. Furthermore, a significant impact on the premium of factors that capture the differences in the supply of the shares as well as liquidity differences in the markets is observed. Evidence is mixed on the impact of information asymmetries as well as speculative behaviour in the A-share market. On the other hand, no significant impact of differences in the underlying currency risk could be confirmed.