| The cross-listed stock market in the mainland and Hong Kong is also known as the AH stock market.For a long time,the values of the vast majority of AH shares in the A-share market have significantly exceeded the values of their shares in the H-share market,a phenomenon sometimes referred to as the “AH premium puzzle”.With the gradual opening of Chinese capital markets,the A-share market has become more closely linked to the H-share market,yet the phenomenon of premium persists,which has attracted widespread scholarly attention.The vast majority of existing studies have sought to explain this premium puzzle by looking at the external factors that influence the premium,but little attention has been paid to one important feature of the premium puzzle: one asset,two behaviors.Since they have the same underlying asset,there must be some kind of interaction between the two different prices in the two markets.If this relationship can be further clarified,it is of great significance to further understand the puzzle of the AH premium.This paper uses the market price indices of AH stocks in the two markets as the main research object,and a REW based time-varying causality technique as the main method to study the following four questions from a holistic perspective:(i)Whether there exist timevarying causal relationships between different prices in the AH stock market.(ii)Whether there exist time-varying causal relationships between different volatilities in the AH stock market.(iii)Whether the existence of these causal relationships necessarily attenuates the AH premium situation.(iv)Whether the outbreak of the COVID-19 pandemic has changed the existence of these causal relationships and further affected the AH premium.The results show that:(i)At the price level,the causal relationship between the two prices of A and H shares was established after the launch of the Shenzhen-Hong Kong Stock Connect mechanism,and the direction of causality was transmitted from the H share price to the A share price unilaterally,indicating that the H share market dominated the pricing process of AH shares.(ii)At the volatility level,the causal relationship between the two volatilities is stable throughout the sample period and the direction of causality is unidirectional from A-share to H-share.This suggests that the risk of AH shares in the two markets is contagious and that the A-share market is the source of volatility spillovers.(iii)Even if the H-share prices of AH stocks have causal transmission effects on the A-share price,it does not necessarily mean that the AH premium tends to converge during the causal period.However,once a causal relationship exists at the volatility level for AH stocks,this will inevitably raise the volatility of the AH premium.(iv)The causal transmission from H-share prices to A-share prices was suspended after the outbreak of the COVID-19 epidemic,while the causal transmission from A-share volatilities to H-share volatilities persisted.Meanwhile,the epidemic panic not only affects the causalities between different behaviors of the AH stocks but also leads to a significant increase in the AH premium.Finally,based on the above empirical findings,this paper puts forward three policy and investment recommendations: Firstly,the A-share market should increase cooperation with the H-share market and other mature capital markets to improve the pricing function of the Chinese stock market.Secondly,AH stock investors should pay close attention to the volatility of stocks in the A-share market.They should reduce their investment positions in the H-share market to hedge their risks when prices are more volatile in the A-share market.Finally,investor education should be strengthened to stabilize investor expectations and reduce the impact of the COVID-19 epidemic on the AH stock markets,thereby restoring the causal relationship between the A-share and H-share prices.With these practices,The Chinese stock market can developed with high quality. |
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