The Correlation Between Prices Fluctuation On A-share And H-share

There were 40 Chinese companies that issue A-share in mainland and H-share in Hong Kong before April 19.2007. A-shares are restricted to mainland Chinese investors, while H-shares are available to Hong Kong and international investors. H-share is becoming very important proportion of the shares exchanged in Hong Kong Stock Exchange. H-share do useful effect on the development of the capital market of Hong Kong and help Chinese companies get financing from international capital market. If international capital markets are perfectly integrated, cross-listed shares, should have the same return and risk characteristics, and their prices should not be affected by the trading location. However, in reality, restrictions on foreign ownership, information asymmetry between domestic and foreign investors, language and cultural differences, and other direct or indirect barriers lead to segmendated markets.This paper investigates the correlation between prices movement of mainland Chinese share market and Hong Kong. By studying the price behaviors of 15 firms dual-listed on mainland and Hong Kong stock markets from January 1998 to December 2006,We find that the correlation between the two mainland markets is becoming stronger, H shares price fluctuation embody risk premiums from both Hong Kong and mainland China's markets, with a larger portion pertaining to the former., and the firm-specific price premium between A-share and H share is becoming much smaller and the two segmented markets is to being integrated.