Empirical Study On Factors Of A-H Share Premium And Its Future Trend Analysis

With the economic globalization, the relationship among the world’s major capital markets is getting stronger. China has also experienced a change from close to open, but market segmentation still exists due to previous tight capital control. A unique observation of Chinese stock market is that domestic shares-A shares-enjoy a significant price premium to foreign shares-H shares. Since H share market is one of the most important oversea capital markets for Chinese enterprises, exploring the factors of A-H share premium is of significant value.The thesis examines the following major factors which may lead to A-H share premium. They are information asymmetry, liquidity difference, elasticity of demand and investment philosophy. These factors are explained theoretically and tested empirically. Up to Aug.2012, there are 77 A-H dual-listed shares in all. I used the data for the last 4 years from Jan.1st,2009 to Aug.23th 2012 of them to build the panel data model and test the influence of the previous four factors. The result shows the model is effective and all the factors are statistically significant. In addition, the empirical evidence also supports the theoretical analysis.Furthermore, I believe that A-H share premium will be reduced or even eliminated in the future.The analysis is based on the Chinese specific conditions and the change of those main factors. The theory can be effectively put into practice. Finally, according to the conclusions of the previous parts, I made some suggestion for both government and investors.