China’s RMB Exchange Rate Expectation And AH Share Price Difference Correlation Analysis Based On Markov Regime Switching Model

From the beginning of the1970s, lots of western scholars have been devotedto the study of international capital on the market "the same shares with differentprice" phenomenon. But in our country for a long time, A shares have maintaineda substantial premium to H shares because of Chinese mainland stock market andHongkong stock market segmentation and restrictions on capital flows.Abroad for market segmentation in domestic shares and foreign shares of thesame stock different price put forward the theory of asymmetric informationhypothesis, the liquidity difference hypothesis, the elasticity of demanddifference hypothesis, investment philosophy differences hypothesis is relativelymature, but because of China’s capital market development is not perfect, it isdifferent from the foreign market, has the certain practical significance study onthe influence factors of the new China AH share price difference. Therefore weconsider the expected RMB exchange rate factors.many scholars focused on the linear relationship of cycle fluctuations in thedomestic between the variables, but they ignored the nonlinear characteristics ofdifferent stages of the cycle. This article is based on this problem, the cycle isdivided into two different regions, namely "stable stage","excessive premiumst"age. Research on volatility relationship of each regime, and carrics on thecontrast analysis, put forward policy suggestions to adapt. The article uses tworegime Markov switching vector autorcgrcssive model (MSIAH (2)-VAR (2)),variable selection of the AH premium index,long-term RMB exchange rate,SSEComposite Index and the Hang Seng Index based on the sample interval, electedin2006July to2013December.The empirical results show that, China in2006July-2013December, the AH share price difference significant two regimes, namely "stable" and"excessive premium stage", which appeared in the four zone transfer, accordingto the transition probability matrix, in the stable phase of the maximumprobability, duration is long, estimation in the future has the largest possibility.Under different regimes, AH share premium ratio is not fully consistent with theexpected correlation between RMB and exchange rate fluctuations. In the regime1，AH share price difference is small.In this regime, The expected correlationcoefficient between the RMB exchange rate expectation and AH sharepremium is low; in regime2, AH share premium ratio is very high, people thanexpected exchange rate lfuctuation, and gradually by the appreciation to thedevaluation of state, in this regime, two variables showing non-conformance, theRMB exchange rate appreciation effect and the expected devaluation effects havean impact on the AH price difference, if the RMB appreciation, the A shares Hshares relative to the premium will rise; On the contrary, it will drop.We put forward the policy proposal based on AH price difference factors ofinfluence and it is linked to the A，H shares market.It can optimize and improvethe A shares market allocation of resources and ifnancing functions and providedecision-making guidance for opening the A stock market in the furture.lt alsoprovides theoretical guidance for the pricing of listed listing Corporation, as wellas to provide investors with significance of the investment strategy.