Empirical Analysis On The Relationship Of The Share Prices Of The Cross-listed Company In China And Its Factors

With the formation and development of the international capital market in the end of the20th century, capital market plays an important role in regional economic activities expanding to global economic activities. On the one hand, international capital flows through a cross-border way, looking for investment opportunities worldwide. On the other hand, the original financing activities break through geographical restrictions, seeking international capital actively, and companies listed abroad is one of the ways. With the maturity of the conditions listed overseas, there are many companies which are listed both in the local stock exchange and foreign exchange, the so-called cross-listings. The cross-listing phenomenon of Chinese enterprises can be traced back to the1990s. State-owned manufacturing enterprises, such as Qingdao beer, Guangzhou Shipyard International, Shanghai petrochemical, raised a wave of overseas listing, and then these H shares companies listed in Hong Kong began to return to A-share market listing again, forming a so-called "A+H" cross-listing, or even "A+H+N" cross-listing.The biggest concern is the phenomenon of "same stock with different price" on the cross-listed companies, which is to say the same company’s stock price is different in the different market, but with the same rights. For our cross-listed companies, A-share price generally exhibits a high premium on the H-share price. Before2010, the prices of A-share of many companies were5-6times of H-share prices, or even higher. After2010, they became lower. Compared to the common phenomenon that the price of overseas stock is higher than the domestic in the world, it is significant that we make a study on the price difference between A-share and H-share of the cross-listed companies in China. Meanwhile, along with the opening related policy, our study on the price difference has great practical significance. Firstly, it can help enterprises to understand the difference between domestic and foreign markets before being listed overseas and make price reasonably to finance smoothly. Secondly, it can let the investors of A-share market assess the companies issued overseas and listed back to A-share market, make a reasonable valuation and investment decisions. Furthermore, it can provide some policy ideas to perfect A-share market, making it become an influential international capital market as soon as possible.Firstly investigating the historical situation of AH premium index, we find AH premium index tend to be smaller as a whole in recent years, which can show the great AH deviation is changing, the gap between asset valuations assessed by two market investors is shrinking, the segmentation between the two markets is waning. Then we discuss the AH difference situation since the year2010in different industries, and find that the price of A-share is less than H-share of "A+H" cross-listed companies in financial insurance industry as a whole, and the AH share price difference degree is consistent among these companies. We believe that investors in Hong Kong market generally are optimistic about China’s financial insurance enterprise, which perform stable and be transparent for overseas markets investors. As a result, they obtain high valuation in the overseas market.In this paper, there are two parts of empirical research. Firstly, we examine the relationship of the stock prices in different markets. By Co-integration and Granger causality test, we conclude that the long-run equilibrium relationship between the prices does exist. What’s more, the H-share is in a leading position relative to A-share, N-share to H-shares in a leading position. Secondly, we use panel data model to explore the factors that affect the AH price differences from the perspective of market segmentation. The selected factors include information asymmetry, liquidity differences, differences in elasticity of demand, the impact of the markets. Meanwhile, as a comparative study, we also do empirical research on the relationships between H-share price and N-share price, and the factors affecting the differences of the few "A+H+N" cross-listed companies. The results show that liquidity and the elasticity of demand differences make a contribution to the AH price difference, while information asymmetry and risk appetite difference between the two markets not. HN price difference are mainly affected by the impact of the listed markets, while slightly by the difference in risk appetite.Finally, we argue that the basic reason of the price difference is that there is a great degree of soft segmentation between the A-share market and Hong Kong market or global market. The characters of mainland capital are lack of diversified investment channels, having no good investment concept, being absence of perfect market system. With the hard segmentation being broken gradually, in order to avoid the domestic market being hit strongly, we propose some advice, accelerating the construction of the multi-level capital market system and expanding investment channels, establishing the interaction arbitrage mechanism between markets, strengthening the institution building of China’s capital market to change the segmentation situation with the international market.