An Empirical Study On A-H Price Difference

With the listing of Qingdao Beer on both A-shares market and H-shares market, China has officially embraced its era of "A+H shares". But the stock prices of the same company on the two markets are different. Due to the market segmentation, one company listed on different markets may share different stock prices, which is obeying the "Law of One Price" principle. This phenomenon is not unique in China, it’s quite common in international world, what is interesting is that usually, the prices of foreign stocks are higher than domestic capital stock prices, In China, the observation is reversed. This is called "the China Foreign Stock Discount Puzzle" in academic circles. Since the B-shares are not issuing new stocks in China, the research on H-shares and the A-H price difference are becoming more important.Referring to previous studies on A-B price difference, this article picks 44 A-H dual listed companies, using OLS to test the influence of the four hypotheses (The Asymmetric Information Hypothesis, Liquidity Hypothesis, Differential Demand Hypothesis and Differential Risk Hypothesis) and the Shanghai and Hong Kong Stock Connection policy. The empirical analysis reached the following conclusion: Differential Demand Hypothesis and Differential Risk Hypothesis have strong abilities on explaining A-H price difference. Also, the Shanghai and Hong Kong Stock Connection has increased the A-H price difference. Since the sample period is within a bull market, more spectacular behaviors happened during that specific time, so the risk preference and the liquid of the stock have largely increased. As to the Shanghai and Hong Kong Stock Connection Policy, once it’s opened, the A-H price difference increased immediately.Based on the findings and potential explanations for these findings, the paper gives some policy recommendations. Firstly, on the aspect of government, they should put more efforts on investor education. Meanwhile, it’s quite necessary to carry out more policies to relax the situation of market segmentation. Also, the supervision system should be pay more attention to in order to bring market equity. Secondly, on the aspect of companies, information disclosure should be more timely and accurate. Finally, on the aspect of investors, healthier investment habits should be acquired by the investors; they should learn more and think more before investing.