The Ah Price Gap In Empirical Research

This paper is to analyze the phenomenon of price differential of Chinese AH dual listing equities after the stock market reform in mainland China based on the empirical study of two groups of relevant drivers. Different from other emerging markets, domestic shares enjoy consistent price premium over offshore shares in China. Time series regression models are built to test the first group of elements which are macro factors including currency exchange rate, difference in risk free rate of return and market systematic risks of two markets. Cross-sectional regression models are used to test the second group of factors which are company-level factors including relative supply, volatility, liquidity, corporate governance and financial performance. The result shows that the A market index explains the most of the price differential, H market index the next and currency appreciation expectation also helps explained the premium of domestic shares while other factors have little explaining power. The over-heated and abnormal market condition in China after the Share Reform is responsible for the increasing gap of the price differential and suggestions for improving the integration of the two markets are given.