The Research Of Price Differentials Between A And H Shares In Chinese Stock Market Based On The BAPM Model

Because of capital controls, as well as historical reasons, Chinese has been divided into A,B and H-security markets. Since the company-Tsingtao Brewery Group issued first H shares at the Hong Kong stock market in 1993,China has listed dozens of companys which have potential growth capacity, serves as the leading position in relative sectors and, can reflect country's overall development to some extent in Hong Kong. Currently, H-stock market has replaced B-share market as an important platform for China's enterprises to acquire foreign investment, and A+H model has become the favourite option for Chinese large state-owned enterprises financing inside and outside.The dual-listed company in mainland China and Hong Kong is one enterprise, as a consequence, its shares should have the same expected cash flow and risk characteristics, and the price of these stocks should be the same and will not be affected by location if the two capital markets are a complete reunification. In fact, however, because of the existence of liquidity differentials, differentials in elasticity of demand, differentials about investor risk appetite, as well as the factor of information asymmetry, almost all the A+H dual-listed companies are "homogeneous, but different price." Moreover, a noteworthy phenomenon, which is different with other countries, is that H stocks of the state-owned enterprises are all discounted compared with the mainland stock market due to our country's security market segmentation strategy. It has lasted a long time for the substantial price discount of H stocks of our Dual-listed companies compared with relative A shares, accompanied with the dramatic fluctuations.Of course, the argument about price differentials between A and H shares has never stopped not only in the crazy bull market but also in the despairing bear market. And at certain times, the discounted extent of H shares even serves as an important factor when people decide to buy or sell some stocks. From January 2007 to February 2008, with the companies of Chinese Construction Bank, Shenhua enterprises, Chinese Oil and other large red chips return to the A-share market, people's attention to the H-stock market has reached its peak. In this context, the research on the phenomenon of price differentials between A and H shares has become one of the urgent problems which need to be solved for our nation's financial sector, and the analysis on factors which lead to the price discount are undoubtedly of great significance.Behavioral Asset Pricing Model is the inheritance and development of the traditional Capital Asset Pricing Model. The fruits of the model is that it bases on the real situation of the real world, and can come to the conclusion that because of the irrational investors and limited arbitrage of financial markets, noise trader risk will exist in the security market. what's more, the model could put this kind of risk into the framework of asset pricing theory. In this paper, starting from CAPM, we will give you a systematic introduction of the model's emergence and its derivation process. Then this paper will make theoretical and empirical analysis on the current hot spot of controversy of Chinese security market-the price differentials between A and H shares through the Behavioral Asset Pricing Method which is based on the behavioral finance theory. And pointed out that if we let"noise trading"represent the non-rational behavior of investors, it can be the"noise trader risk"to describe the overall impact on the mainland and Hong Kong stock markets due to the non-rational behavior of the investors of the two markets.By the empirical testing, this paper finally come to the following conclusions: in terms of A-share market or in the H-share market, noise trader risks are obvious exist, and it is just the existence of such risk that lead to the price deviation between the actual stock price and the price calculated by traditional pricing model. If we take noise trader risk into the pricing system, the problem of price differentials about A+H dual-listed companies'stocks will be partially explained.