A Share Market Vs. H Share Market:Which Is Better At Understanding The Chinese Firms?

The paper investigates the difference in the reaction of A share market and H share market to the financial information of Chinese firms and finds difference in pricing Chinese firms and the reasons behind them.Firstly, the paper introduces the general condition of the Chinese stock market and multi-listing in China. As the world is getting closer, multi-listing has become one of the options for firms to access financing. However, China is a special market and the stock market is divided into 3 parts: A, B and H share market. For Chinese firms, to choose where to list and what the characteristics of the 3 parts of Chinese stock market are, these are all the questions for Chinese firms to answer. The paper tries to answer these questions through studying the difference between A share and H share market. After introducing the general condition of Chinese market, the paper goes through the studies on the connection, correlation and difference across markets. In general, these studies are divided into 3 categories:the first category is a common research on how much the correlation is across markets, the second one is to try to understand whether one market is guiding other markets, the last category is the study on the reasons behind the results of the first two. The paper should belong to the second and third category as it studies the relationship between A share market and the H share market and also examines the reasons behind this relationship.After determining the objectives of this study, this paper presents research model assumptions and the research method, namely event study. The main model is a linear regression model, where the cross-terms of the factors (market dummy variable, market liquidity, market capitalization, investor structure) and abnormal returns are introduced in order to study the effects affecting the market difference. After determining the assumptions, variables and model, this paper examines the descriptive statistics of all the variables, concludes that almost all of the variables between the two places were significantly different, and show a certain trend. In terms of liquidity, A share market has a relatively larger volume of transactions, and this relatively larger trading volume trend continues. With regard to investor structure, institutional investors in H share market have a higher proportion of the shares in circulation, but in A stock market the relative proportion of outstanding shares held by institutional investors are rising. In terms of the market capitalization, the same data are used for the 2 markets, but it still captures the main difference across different markets.After examining descriptive statistics, this paper runs the regression analysis, and gets regression results. Regression results show that does show difference in response between the two markets for certain information. Relatively speaking, investors in A share market can more accurately understand the message released by Chinese firms, while investors in H share market is relatively less capable. Through the decomposition of the total variation, part of this difference is interpreted as innate, due to the special position of A share market for Chinese firms in terms of territory, A share market has certain advantages in understanding Chinese mainland firms. Second, the involvement of institutional investors is actually helping to narrow the gap on cognitive ability between markets. The liquidity factor in helping A share market to increase this cognitive advantage over H share market. After the preliminary analysis of the results, the validity of the model was analyzed and corrected by stepwise regression model. The results of the modified model are consistent with previous findings. Finally, the limitations of the paper are presented and future research directions are suggested.