An Investigation Into The Factors Affeciting A-H Share Premium

This paper samples the data range from January 4 of 2007 to July 30 of 2010. The companies under discussion are A-H shares of public companies. This paper attempts to establish econometric models using panel data to investigate the main factors affecting A-H shares premium. The results show that the main factors resulting in A-H share price differences are total market value, relative rate of turnover, relative share supply ratio, information asymmetry factors and other factors. The conclusion of this paper differs from the previous literature research. The main reason is that after the US subprime-debt crisis, market connections between mainland and Hong Kong have strengthened. Though explaining powers of market factors on A-H premium are not so obvious, liquidity hypothesis and asymmetric information hypothesis can account for A-H shares'prices differences.This paper argues that the fraction of Hong Kong and the mainland markets'is the root of A-H share price differences. Therefore, the mainland must further open our capital market to the outside world and the mainland investors'access to Hong Kong equities,QDII and QFII systems are the primary policy choices. As an important area in the Asia-pacific region financial center, the Hong Kong market is the main destination of domestic and overseas securities investments. In fact, it plays an important role of portfolio diversification. That is exactly the purpose of this paper to address price premium.