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Price comovement and market segmentation of Chinese A- and H-shares: Evidence from a panel latent-factor model

Author

Listed:
  • Dong, Yingjie
  • Huang, Wenxin
  • Tse, Yiu-Kuen

Abstract

This paper examines the price comovement of cross-listed Chinese A- and H-shares using a panel model with latent factors and a heterogeneous long-run structure. Our model is more flexible than the cointegration system and is estimated using the data-driven Cup–Lasso method. The long-run H-share price discounts are heterogeneous across different groups of stocks. We have identified both stationary and nonstationary latent factors in the price differentials, which are driven by different economic variables. By analyzing the factor loadings of the nonstationary latent factor, we identify some trading-friction and information-friction variables that have effects on the price convergence between the A- and H-shares.

Suggested Citation

  • Dong, Yingjie & Huang, Wenxin & Tse, Yiu-Kuen, 2023. "Price comovement and market segmentation of Chinese A- and H-shares: Evidence from a panel latent-factor model," Journal of International Money and Finance, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622001978
    DOI: 10.1016/j.jimonfin.2022.102794
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    More about this item

    Keywords

    Common latent factors; Cross-listing; Cup-Lasso method; Market segmentation; Panel model;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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