A Study Of Information Transmission Between A And H Stock Markets And Price Discovery Of Cross-listing Stocks

Since the 1970s, cross-border listings and the same company are traded in multi-markets have been a common phenomenon in the international capital market. Under the international capital market segmentation, the same company listed in multi-markets usually has different risk characterizations, different earnings and prices. Internal and External Scholars have conducted so much research both theoretically and empirically on the issue of "one stock with many prices", and have got many important conclusions. But when a security is traded in many markets, besides the absolute difference of the price, another question--the difference of the price fluctuation should be considered. Because the price fluctuations contain much information, this information arguably is the most important product, has many attributes of public goods, and directly regulate to the market efficiency. With the gradual abolition of trade barriers, market liberalization and the economic co-ordination of every country is strengthened, which imply the co-integrations of the goods markets and consecutively the co-movement of output, earnings/dividends and the stock prices. Under these situations, the classic price discovery theory in market microstructure concern a security that trades in a single centralized market is challenged, and which make us to consider information transmission and price discovery from one market to multi-market. On the perspective of financial markets microstructure, based on the information theory, using the theoretical analysis and the empirical testing, we analyze the information transmission and the price discovery through A stock market and the H stock market in china. The paper includes five aspects:1. We analyze and compare the stock issue system, trade system, investor structure and their behavior of the A stock market and the H stock market. At the same time we analyze the "A+H" listings'actuality and characters. We analyze the aspects that the difference of both markets may impact the information transmission and price discovery to A and H stocks, and propose some hypotheses.2. We analyze the impact of the trade system difference to the information transmission and price discovery to A and H stocks. Especially, using the theoretical analysis and the empirical testing, we analyze the impact of open and close quotation price system, price limit system. And analyze the impact of block trade system and "T+1" trade system only theoretically.3. Followed the stands of literature comes from the field of market microstructure analysis, we date back the theoretical model and the empirical models related to the cross-listed and price discovery. Using the 57 "A+H" cross-listed date data and employing the Long/Transitory Model, Information Share Model, Modified Information Share Model and Kasa Model, we analyze the contribution of A and H shares to the price discovery quantitatively. During the calculation process, we consider the liner relation and the nonlinear relation between the A and H shares.4. Trading volume as the share prices is one of the most important signals in the second market, and one of the reference indexes for the investor. We analyze the relation between the trading price and the trading volume of A share and H share to test whether apparent and steady relations between them exists. If exist, which indicate that only considering the price in the price discovery model is not enough, trade volume should be considered too. We analyze this relation using theoretical model and separate the information contained in the trading volume by an empirical method. Then we calculate the contribution of A and H shares to the price discovery quantitatively again considering the trading volume information.5. Only considering the trading volume information is not enough, because in the market trading process, prices reflect all the information apparent in the market. After summarize all the research on the aspects that affect the price discovery, we get four theoretical hypothesizes, market microstructure hypothesis, home country effect and world centre hypothesis, market segmentation and information asymmetric hypothesis, and investor behavior difference hypothesis. We examine all these hypothesizes to the price discovery ability of A and H shares.