The Research Of Sentiment Effect On Return And Price Of A And H Shares

For a long time, the A shares and H shares of dual-listed companies have the same futurecash flows, but different prices and incomes. Compared with relative A shares, H shares ofdual-listed companies always has a substantial discount which has violent fluctuations, whichis distinct from the relationship between non-restricted shares and restricted shares in otherforeign countries.Scholars at home and abroad have discussed the cause of price differences. However,most of the studies are confined to the traditional financial areas, while some papers mighthave touched on behavioral finance areas without in-depth study. Regard to sentiment effectto stock returns, most of the early studies focus on overall effect and cross-sectional effect ofmarket sentiment on stock returns, and they focus on either the mainland market or the HongKong market. There’s a lack of comparision of individual stock sentiment effect on stockreturn between A and H shares.This article gives special consideration to the investor sentiment when explain the pricedifferences between A and H shares and has theoretical analysis and empirical research. Thestudy also compares the sentiment effect of A shares with H shares and lists the possiblecauses. Empirical results show that returns of A shares and H shares are all affected by theirinvestor sentiments, but sentiment effect of H shares is greater than A shares, which iscontrary to prevailing views. Possible reasons include three aspects. First, Hong Kong markethas no price limits and short-sale constraints, which makes H-share price more volatile.Second, the information asymmetry between mainland and Hong Kong market expands thevaluation range of H shares. Third, the risk aversion of A shares investors is lower than itscounterpart. The study also shows that small stocks, low earnings stocks and high growthstocks are more affected by sentiment than large stocks, high earnings stocks and low growthstocks. Moreover, the results reveal that demand differential hypothesis can’t pass the test butother four hypotheses, which include information asymmetry, liquidity differential, riskdifferential and investor sentiment differential, have good explanatory ability. It can bespeculated that investor sentiments in mainland market is usually greater than those in HongKong market, which contributes to the A-share premium.