Research On The A-H Shares' Price Difference Basing On Information Asymmetry And Investor Sentiment

Under the background of global economic integration, dual-listed company become increasing common for those enterprises who want to raise fund from international and domestic markets. Attributing to the market segmentation, the stock issued by the same company in different stock markets have different prices. Interestingly, comparing to cross-listing pricing premium in other countries, China is the only country in the world experiencing the cross-listing pricing discount. This Chinese unique phenomenon reflects the distinctiveness of Chinese stock market's regime and the investor structure. Therefore, research on the impact factors of AH shares' price difference contributes to looking deeply into the Differentiation between Chinese stock market and Hong Kong stock market, so that we can provide potent theory reference to improve the operation of Chinese stock markets. This paper is going to study the factors which impact price difference of A and H share from the perspectives of information asymmetry and investor sentiment.Firstly, this paper research on the price difference of AH shares from the point of information asymmetry. Considering for the real situation of the stock markets of Hong Kong and mainland of China and basing on the two-type-firm theory,this paper divides existing listed firms into two types: good firms with growth opportunities and bad firms which cheat the investors. Then, the paper analyzes the motivations and results of bad firms cross listing in HK so as to explain the cross-listing discount. Next, the paper raises three testable implications reflecting the extent of information asymmetry: cross-list, headquarter location and market capitalization. In this paper, Tobin's q is used as the measurement of market value of listed companies, and the writer develops two multiple linear regression models of Tobin's q in order to do correlation test between aforementioned three testable implications and Tobin's q. The results of OLS data regression empirical analysis show that cross-listing has a significant negative impact on listed firm's Tobin's q, however, the coefficients of headquarter variable and market capitalization are positive in regression and they are statistically significant. So this paper draws the conclusion that cross-listing decreases the market value of listed firms because of information asymmetry which leads to the discount of H shares, but the H share headquartered in well-developed cities or with higher market capitalizations have lower discount rates, resulting in the decline of AH shares' price difference.Furthermore, in order to figure out the impact of investor sentiment on AH shares' price difference, this paper using principal component analysis to construct A-share's and H-share's composite indexes separately as proxy for market investor sentiment. Then, this paper makes some improvements of the static asset-pricing model——allowing the Beta varying with investor sentiment. Next, this paper applies time series regression and cross-sectional regression successively to check out if the investor sentiment can help asset-pricing model to capture the asset-pricing anomalies effetely. The empirical results indicate that after incorporating investor sentiments in conditional pricing models, the size effects of A-share market and H-share market are no longer significant,meanwhile, the B/M effect of A-share market becomes less significant. Therefore, we draw the conclusion that incorporating investor sentiment as conditioning information in conditional asset-pricing models improves the model performance in capturing asset-pricing anomalies, however, the improvement on A-share pricing is stronger than that on H-shares, which demonstrates that different market investor sentiments have different degrees of impacts on asset pricing, resulting in the price difference of dual-listed A and H-shares.Finally, according to the research results and situation of Chinese stock market, this paper proposes several corresponding policy suggestions from the aspects of reducing the information asymmetry and irrational investing behavior in A-share market.