An Empirical Study On Price Differences Between A-share And H-Share After The Reform Of Non-tradable Shares

Market segmentation can bring about price variances among different markets. These price variances are often characterized by premium of foreign capital stocks against domestic stocks. On the contrary, the prices of foreign shares have always been lower than that of those companies listed in the A-share market in China.The researches of stock market segmentation mainly explain price differences of dual listing company with asymmetric information, demand, speculation, liquidity and risk. However, most of researchers focus on foreign dual listing companies or companies issue shares both on A-share market and B-share market, lacking of studies on price variances between A-share and H-share. What’s more, most data used in the small number of existing studies on price differences between A-share and H-share are collected before the reform of non-tradable shares. While the reform of non-tradable shares has resolved the historic problem of split share structure, making the restricted stock available on the stock market. Therefore, the premium phenomenon of A-share and H-share may become different, needing further explanation and analysis.There are five explanatory variables designed for the premium phenomenon out of asymmetric information hypothesis, demand hypothesis, speculation hypothesis, liquidity hypothesis and risk hypothesis in this thesis. The sample data are chosed from42companies issue shares in both A-share market and H-shard market in the latest4years, all of which have continuous and complete trade record during the sample period. Through BP test and Hausman test, the random effect model is built. Then after the heteroscedasticity test and first order serial correlation test, the FGLS(Feasible Generalized Least Squares) is used in the regression analysis so as to eliminate heteroscedasticity and first order serial correlation. The empirical results are as follows:The price of A-share is still higher than that of H-share after the reform of non-tradable shares. And the premium rates of A-shares and H-shares are significantly determined by asymmetric information, speculation and risk. In particular, the premium rate is in direct proportion to the speculation of the investors in A-share market and in inverse proportion to the asymmetric information of these dual listing companies and risk differences between the two markets. However, the premium rate is not significantly related to demand and liquidity.To sum up, the empirical results show that the information exposure level of the companies in A-share market is still too low, and the speculation level of the investors in A-share market is too high. For this reason, in this thesis there are a few policy advice for the supervision system of the International Board which may come soon.