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Does the Shanghai–Hong Kong Stock Connect significantly affect the A-H premium of the stocks?

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  • Hui, Eddie C.M.
  • Chan, Ka Kwan Kevin

Abstract

Since the Shanghai–Hong Kong Stock Connect (“the Connect”) was launched in late 2014, more and more Mainland investors have invested in Hong Kong listed shares, and vice versa, increasing the transaction volume of the stock market on both sides. However, only a few studies investigated how the Shanghai–Hong Kong Stock Connect affected the pricing dynamics of stocks listed in both Shanghai and Hong Kong. Applying linear regression, this study investigates how the Connect affects the H-share discounts of 12 stocks cross-listed in Shanghai and Hong Kong. A new feature of our model is that we add a dummy variable so as to be the first study to examine the effect of the China financial crisis on the A-H premium of the stocks. We find that the A-H premium of all stocks widens significantly after the Connect is launched, implying immatureness or even inefficiency of China’s financial market. Furthermore, the result shows that trading activities in the mainland market affects the A-H premium more significantly than trading activities in the Hong Kong market do. This implies that China’s financial market plays a dominant role in the Connect.

Suggested Citation

  • Hui, Eddie C.M. & Chan, Ka Kwan Kevin, 2018. "Does the Shanghai–Hong Kong Stock Connect significantly affect the A-H premium of the stocks?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 207-214.
    • Handle: RePEc:eee:phsmap:v:492:y:2018:i:c:p:207-214
    DOI: 10.1016/j.physa.2017.09.073
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    Citations

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    Cited by:

    1. Jia, Qiaoyu & Zhou, Jia'nan, 2021. "The dark side of stock market liberalization: Perspectives from corporate R&D activities in China," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    2. Jansen, Maarten & Swinkels, Laurens & Zhou, Weili, 2021. "Anomalies in the China A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    3. Xunfa Lu & Zhitao Ye & Kin Keung Lai & Hairong Cui & Xiao Lin, 2022. "Time-Varying Causalities in Prices and Volatilities between the Cross-Listed Stocks in Chinese Mainland and Hong Kong Stock Markets," Mathematics, MDPI, vol. 10(4), pages 1-19, February.

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