The Information Transmission And Price Differentials Determinants In China's Segmented Markets After The Full Circulation

By the end of 2007, there have been 1298 listed companies finished their Share Merger Reform in the Shanghai Stock Exchange and Shenzhen Stock Exchange, accounting for 98 percent of those needs reform, leaving only 33 companies which havn't finished yet. Just at this time, the share merger reform completed. From then on, with no fundamental difference in institution, China's capital market enters the full circulation stock market era. Under the full circulation background, connection among each stock market have became tighter than ever before, the hard market segmentation factors are on the decline. As for the Chinese dual-listed firms in the stock A market and stock H market (short for AH dual-listed firms), there are some new phenomena in the information transmission and price differentials determinants.After review on the previous literature of theory and practice on China's markets segmentation and AH price differentials, this paper emphasizes on the existing price differential theoretical hypothesis: the Information Asymmetry Hypothesis, the Differential Demand Hypothesis, the Liquidity Hypothesis and Difference in Value Preference Hypothesis. My sample consists of 34 firms that dual-listed on the stock A market and stock H market over the period 2006-2009 (especial after the share merger reform, 2008-2009). By using time series analysis and panel data analysis, this paper re-examine those hypothesis and empirical results are as followings.The 795 daily close price reveals that the average premium of A-share to H-share is 32%, with the hightes point of 108%, over the period of Jan.3rd,2006 to Mar.31^st,2009. In the VAR model, the cointegration test indicates that A share yield and H shares yield couldn't have a stable equilibrium in the long run as the result of unefficience in the Vector Error Correction Model (VECM). To the contrary, after the share merger reform, by using 294 daily close price, the cointegration test suggests a pronounced long-term equilibrium, which means 1.2202 times change in A-share price go with each change in H-share price. And as VECM shows, error correction coefficients are pronounced negative, which guide the short-term fluctuations in A-and H- shares back to the above long-term equilibrium.Granger causality tests demonstrate that yield of AH dual-listed firms between A- and H- shares granger cause each other. After the full circulation, H-shares price granger causes A-share price, information dissemination from H-shares to A-shares. The separate variance decompositions for AHXA and AHXH display that 90% and 60% of the H- and A-shares prices' forecast variance due to the H-share price's innovations.By applying fixed effects estimates method to the static panel data model of the selected 34 AH dual-listed firms under the full circulation background, this dissertation explores the determinants of price differentials in chins's segmented stock market. In the testing period, there is pronounced evidence to support the Information Asymmetry Hypothesis, the Differential Demand Hypothesis, the Liquidity Hypothesis, excluding one of the proxy variable-AIE. But find no significant prove to manifest international investors prefer Chinese valuable equity assets, which leaving on its trail a lower discount of H-shares and a less AH share premium.To minus prevail market segmentation and narrow current price differentials, this paper draw an conclusion with some advice: a, Twins-listed in the share A market and share H market with the same price and the same volume. b, Arbitrage mechanism across the Mainland and HongKong stock market. c, International competitiveness of mainland institutional investors.