Research Of The Price Discrepancy Between A-share And H-share Based On Shanghai-hong Kong Stock Connect Program

The question that the price discrepancy between A-share and H-share in Chinese stock market attracts a lot of attention.The implement of Shanghai-Hong Kong Stock Connect Program connects the two stock markets,breaks the barriers between the markets and reduces the degree of market segmentation.Theoretically,it could generate parity effect between the two stock markets and help to release the price discrepancy between A-share and H-share.However,it needs further tests on whether the implement of this program has effect on releasing the price discrepancy between A-share and H-share.This research firstly collects the relevant theories,discusses the factors which lead to the price difference between A-share and H-share,and analyzes the the formation mechanism of the price discrepancy.Secondly,empirical research is carried out from two different views,the market and the single stock.From the view of the market,VAR models are used to analyze the impact of Shanghai and Hong Kong stock markets on the price discrepancy of A-share and H-share,and compare the differentials of the impact before and after the implement of the stock connect program.From the view of the single stocks,10 AH-shares are selected from the AH-shares which are traded under the stock connect program.The panel data of 10 selected-AH stocks is analyzed to test how liquidity,information asymmetry,demand differences and Shanghai-Hong Kong Stock Connect Program influence the price discrepancy between A-share and H-share.Moreover,the impact of the factors is ranked based on the impact size.The results of the empirical research highlight the following conclusions.First,the volatility of Shanghai and Hong Kong stock markets has an impact on the price differentials between A-share and H-share.The implement of the stock connect program could help to release the price differentials more or less.And the volatility of the two markets has a positive impact on the price discrepancy between A-share and H-share.It suggests that the stock program has little effect on narrowing the price discrepancy between A-share and H-share from the view of the market.Moreover,from the view of a single stock,it expands the price discrepancy,which is contrary to the theoretical expectation.Liquidity,information asymmetry,and demand difference are the factors which contribute to the price discrepancy.Based on the results,three main suggestions are put forward: to enhance the market transparency and reduce the degree of information asymmetry between different markets,to advocate rational investment and inhibit the excess liquidity in the mainland stock market,and to broaden the investment channels for the mainland investors and improve the investment supply and demand in the mainland stock market.