Arbitrage Trading Strategy For A+H Shares

A + H shares refer to company securities listed on both the Hong Kong Stock Exchange and the Shanghai and Shenzhen Stock Exchanges.With the opening of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect,investors can buy and sell A + H shares through their listings.The company's stock,more and more investors began to look for arbitrage opportunities for A + H shares.For the A and H stocks of the same company,theoretically "same shares,same rights and same price",in fact,due to the differences in the policy environment,trading system,and investor structure of the capital markets of the two places,there are often large differences in transaction prices.However,because they belong to the same company,their profitability and risk factors are the same.There should be a high correlation between the price trends of A and H stocks,and there may be statistical arbitrage opportunities between them.As of May 2019,there are 112 A + H-share listed companies,and 85 of them can conduct margin financing and securities lending business.Can we make a profit based on these targets?The research content of this article is to fit the spread sequence of A + H shares from the perspective of time-varying random spread theory,and dynamically select the trading targets of A + H share pairing combinations to design effective trading strategies for arbitrage and based on reasonable performance Indicators verify the effectiveness of the strategy.This study finds that: A + H shares have a discount(or premium)price phenomenon,as well as a high degree of correlation and co-integration,which proves that A + H shares may have statistical arbitrage;on the other hand,the A + H spread sequence in addition to the performance There is a large number of jumping behaviors in addition to the mean recovery characteristic.Due to the different transmission mechanisms of the two cities,the asynchronous nature of the jumping will be caused,so the spread sequence reflects a "spike" phenomenon.For the A + H price difference sequence,this kind of jumping Responsiveness,Markov state transition model is a good characterization tool.In this regard,this article initially screened 45 A + H shares listed before the opening of the Shanghai-Hong Kong Stock Connect and with margin financing and securities lending business,and processed their RMB-denominated stock price series from January 2017 to June 2019 into detrending pairs.The number spread sequence is used to capture the properties of individual stocks and arbitrage trading signals;then,a three-state mean-response model is constructed to characterize the financial characteristics of the spread sequence,and the spread is divided into three states,which are: a relatively stable base for A shares and H shares State,the spike state where the A shares deviate relatively from the H shares,and the drop state where the H shares are relatively higher than the A shares,and then the inverse leverage effect parameter ? represents stability,the average recovery rate parameter ? represents the jump recovery speed,and the average of each state The difference represents the arbitrage margin.For each of the three parameters,three pairs of investment targets are selected for trading.The trading signal draws on the three state averages and standard deviations of the previous period.Then evaluate the effectiveness of the strategy and consider the cost of margin trading for backtesting.The total winning rate of the trading strategy is 75% and the cumulative rate of return is 23.97%,which proves that the trading strategy designed in this paper is effective.At the same time,the trading strategy is also done for investors.risk warning.This article also finds that the arbitrage opportunities of A + H shares listed before the operation of the Shanghai-Shenzhen-Hong Kong Stock Connect are becoming less and less,which may indicate that the A + H share pairing arbitrage trading behavior already exists,and it also indirectly proves that the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism effectively promotes A + H The two stock markets are connected to effectively ease the split between the two markets.Finally,I propose improvements and prospect for the shortcomings of the article.