An Empirical Study On A Share And H Share Price Differences In Chinese Market

Since 1980s,economists have carried out many researches on market segmentation and find that the prices of an asset are different in different markets.The restriction of law,policies,called hard segmentation factors and soft segmentation factors such as information asymmetry and investor preferences are main reasons for market segmentation.Researchers figure out that there is a premium in foreign share price because of foreign ownership restriction.However,the situation in China is an exception.Foreign shares are normally in discount in Chinese market.There are three kinds of reasons:traditional market segmentation,influence of other market factors and policies that may weaken the power of traditional market segmentation.This paper tries to find out efficient factors that may result in the price differences for A and H shares by empirical models.Firstly,we choose some possible factors based on previous studies and put forward theoretical hypothesis.Then we employ empirical proxies and set up empirical models using 2006 to 2015 annual data and 2013 to 2016 monthly data of cross-listing companies in A and H share markets to examine the influence of different factors.The result shows that traditional market segment factors are still one of the important reasons for the difference on A and H share prices.Other market factors also have significant influence on the discount of H shares.Margin trading help to narrow the gap between the price of A shares and H shares.Because of the trading limit,QDII policy didn’t work as expected.Besides,the Shanghai-Hong Kong Stock Connect Program has opposite effects on shares in different industries.Finally,we come up with some suggestions to help with the remove of price differences between A and H shares.