The Analysis Of The Factors Affecting Price Difference Between Maniland Chinese Stocks And Hong Kong Stocks

This paper examines 28 cross-listed firms with shares traded in both the A- and H share markets in Shanghai/Shenzhen and Hong Kong respectively during the period from January 2003 to December 2007 and analyzes the determinants of the obvious price difference between A-shares and H-shares. We first compare both A-and H-share prices, their return and the trend of A-and H share markets indices, and find that for the same company, it's A-share and H-share behaves like A-share market index (Shanghai or Shenzhen stock exchange composite index) and Hang Seng index respectively. Thus, the correlation between A-and H-shares return and the market indices return of their corresponding location of trade is very high (high beta). Moreover, there is no co-integration between A-shares and H-shares and it means, in respect of their price difference, a long-term equilibrium does not exist.Based on previous theories and hypothesis which are derived to explain the price differences between foreign-invested shares and domestic-invested shares, we identify variables and set up regression models to test whether such factors are significant. The empirical result is that ratio of number of tradable A-shares over number of tradable H-shares, ratio between bid-ask spread of A-shares and that of H shares, daily stock turns of A shares and daily stock turns of H shares, ratio of A-share market index over H-share market index, share structure reform factor, China overall risk rating and lag term of A-shares price premium are significantly related to A-shares price premium.Finally, we use Ohlson (1995) pricing model to examine the relationship between AH-shares price difference and earnings per share, net asset value per share and turnover stated in two different financial statements. It seems that financial information, whether prepared under China accounting standard and Hong Kong accounting standard, has a greater influence on H-share market than A-share market. However, having examined the model with the price difference as dependent variable and earning per share difference and net asset value per share difference as explanatory variables, we cannot find there is a significant relation between them.