Author(s)

Lifeng Chen ^1,2, Kaichong Chen ³, Wenwen Yu ⁴

Affiliation(s)

¹ School of Business, Hangzhou City University, Hangzhou, Zhejiang, China
² School of Public Affairs, Zhejiang University, Hangzhou, Zhejiang, China
³ Queen Mary, University of London, London, England
⁴ Department of Global Business Administration, Anyang University, Anyang, Korea

Corresponding Author

Wenwen Yu

ABSTRACT

This paper studies the market price of Chinese companies listed in both the mainland China Shanghai/Shenzhen market and Hong Kong market. The aim is to examine whether there is price equilibrium between these stocks ensuring the stationarity of the A-H share premium. The exchange rate between Hong Kong Dollar (HKD) and Chinese Yuan (CNY) had large fluctuations in the past few years and hence it is paramount to also take FX effects into account. The results show that for a large proportion of dual-listed stocks, there is no long-run equilibrium between A and H share prices if one controls for exchange rate movements. We conclude this paper by briefly discussing several possible reasons for the phenomenal we observed in the test. Firstly, pricing models and valuation methods are different in two markets. Secondly, trading restrictions for foreign investors prohibit arbitrage opportunities between the two markets. The market inequilibrium may still exist for long time, before the A-H shares can be freely convertible between markets. Moreover, CNY has on the raising trend and is likely to continue for years, which is an attractive opportunity for foreign investors. Last but not least, we are going to discuss some interesting phenomenon and its rationale behind.

KEYWORDS

Share Premium, Prices Equilibrium, Listed Company

CITE THIS PAPER

Lifeng Chen, Kaichong Chen, Wenwen Yu, Equity Price Premium in Mainland China and Hong Kong: The Chinese A-H Share Premium. Financial Engineering and Risk Management (2023) Vol. 6: 47-60. DOI: http://dx.doi.org/10.23977/ferm.2023.060206.

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