Funding information: Department of Education of Guangdong Province of the People's Republic of China, Grant/Award Number: 2017WTSCX008; Department of Science and Technology of Guangdong Province of the People's Republic of China, Grant/Award Numbers: 2017A030310251, 2020A1515010421; Fundamental Research Funds for the Central Universities, Grant/Award Numbers: 19JNQM18, 17JNQN011; National Natural Science Foundation of China, Grant/Award Number: 71703055

Read the full text

About

PDF

Tools

Share a link

Email
Facebook
Twitter
LinkedIn
Reddit
Wechat

Abstract

This study analyses the effects of the Shanghai–Hong Kong Stock Market Connect policy on the price disparity between A-shares and H-shares of dual-listed companies (DLC). Using a difference-in-difference estimation method, we show that the policy decreases the relative twin cumulative abnormal returns of treated DLC by 3% and narrows the price gaps between A-shares and H-shares. We determine that the rising demand for H-shares, which are newly accessible by mainland investors, drives the price of H-shares up. By contrast, the price of A-shares remains unchanged. Further analysis reveals that cross-border capital flow is the main force of the policy.

REFERENCES

Alexander, G. J., Eun, C. S., & Janakiramanan, S. (1987). Asset pricing and dual listing on foreign capital markets: A note. Journal of Finance, 42, 151–158.
10.1111/j.1540-6261.1987.tb02556.x
Web of Science®Google Scholar
Athey, S., & Imbens, G. W. (2006). Identification and inference in nonlinear difference-in-difference models. Econometrica, 74, 431–497.
10.1111/j.1468-0262.2006.00668.x
Web of Science®Google Scholar
Bai, Y., Yan, D., & Chow, P. (2017). Shanghai–Hong Kong stock connect: An analysis of Chinese partial stock market liberalization impact on the local and foreign markets. Journal of International Financial Markets, Institutions & Money, 50, 182–203.
10.1016/j.intfin.2017.09.006
Web of Science®Google Scholar
Bekaert, G., & Harvey, C. R. (2000). Foreign speculators and emerging equity markets. Journal of Finance, 55, 565–613.
10.1111/0022-1082.00220
Web of Science®Google Scholar
Baker, M., Foley, F. C., & Wurgler, J. (2008). Multinationals as arbitrageurs: The effect of stock market valuations on foreign direct investment. Review of Financial Studies, 22, 337–369.
10.1093/rfs/hhn027
Web of Science®Google Scholar
Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences–in–differences estimates? Quarterly Journal of Economics, 119, 249–275.
10.1162/003355304772839588
Web of Science®Google Scholar
Burdekin, R. C. K., & Siklos, P. L. (2018). Quantifying the impact of the November 2014 Shanghai–Hong Kong stock connect. International Review of Economics and Finance, 57, 156–163.
10.1016/j.iref.2018.01.001
Web of Science®Google Scholar
Burdekin, R. G. K., & Yang, Y. (2013). Cross-market trading in China's large state-owned commercial banks 2006–2011. Contemporary Economic Policy, 31, 366–377.
10.1111/j.1465-7287.2011.00306.x
Web of Science®Google Scholar
Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. In G. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (pp. 1051–1121). Amsterdam: North-Holland.
Google Scholar
Coeurdacier, N., Rey, H., & Winant, P. (2019). Financial integration and growth in a risky world. Journal of Monetary Economics, 53, 1451–1472.
Google Scholar
Chan, M. M. H. (2011). The causal relationship between dual–listed A–shares and H–shares in China: An error correction model. Journal of Applied Economics and Business Research, 1, 53–63.
Google Scholar
Chan, M. K., & Kwok, S. S. (2016). Capital account liberalization and dynamic price discovery: Evidence from Chinese cross–listed stocks. Applied Economics, 48, 517–535.
10.1080/00036846.2015.1083087
Web of Science®Google Scholar
Chan, M. K., & Kwok, S. S. (2018). Connecting the markets? Recent evidence on China's capital account liberalization. Economic Modelling, 70, 417–428.
10.1016/j.econmod.2017.08.016
Web of Science®Google Scholar
Chan, M., & Kwok, S. S. (2017). Risk-sharing, market imperfections, asset prices: Evidence from China's stock market liberalization. Journal of Banking & Finance, 84, 166–187.
10.1016/j.jbankfin.2017.06.003
Web of Science®Google Scholar
Chari, A., & Henry, P. B. (2004). Risk sharing and asset prices: Evidence from a natural experiment. Journal of Finance, 59, 1295–1324.
10.1111/j.1540-6261.2004.00663.x
Web of Science®Google Scholar
Coffee, J. C. (2002). Racing towards the top? The impact of cross-listings and stock market Competition on international corporate governance. Columbia Law Review, 102, 1751–1831.
10.2307/1123661
Web of Science®Google Scholar
Doidge, C. (2004). U.S. cross-listings and the private benefits of control: Evidence from dual–class firms. Journal of Financial Economics, 72, 519–553.
10.1016/S0304-405X(03)00208-3
Web of Science®Google Scholar
De Jong,A., Rothenthal, L., & Van Dijk, M. A. (2009). The risk and return of arbitrage in dual–listed companies. Review of Finance, 13, 82–111.
10.1093/rof/rfn031
Web of Science®Google Scholar
Fan, C. S., Wei, X., & Wu, J. (2016). Border effect between Hong Kong and mainland China. Pacific Economic Review, 21, 3–12.
10.1111/1468-0106.12148
Web of Science®Google Scholar
Froot, K. A., & Dabora, E. M. (1999). How are stock prices affected by the location of trade? Journal of Financial Economics, 53, 189–216.
10.1016/S0304-405X(99)00020-3
Web of Science®Google Scholar
Giannetti, M., & Ongena, S. (2004). Financial integration and firm performance: Evidence from foreign Bank entry in emerging markets. Review of Finance, 13, 181–223.
10.1093/rof/rfm019
Web of Science®Google Scholar
Henry, P. (2000). Stock market liberalization, economic reform, and emerging market equity prices. Journal of Finance, 55, 529–564.
10.1111/0022-1082.00219
Web of Science®Google Scholar
Heckman, J., Ichimura, H., Smith, J., & Todd, P. (1998). Characterizing selection bias using experimental data. Econometrica, 66, 1017–1098.
10.2307/2999630
Web of Science®Google Scholar
Huo, R., & Ahmed, A. D. (2017). Return and volatility spillovers effects: Evaluating the impact of Shanghai-Hong Kong stock connect. Economic Modelling, 61, 260–272.
10.1016/j.econmod.2016.09.021
Web of Science®Google Scholar
Lin, W. (2017). Modeling volatility linkages between Shanghai and Hong Kong stock markets before and after the connect program. Economic Modelling, 67, 346–354.
10.1016/j.econmod.2017.02.012
Web of Science®Google Scholar
MacKinlay A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35, 13–39.
Web of Science®Google Scholar
Peng, W., Miao, H., & Chow, N. (2007). Price convergence between dual-listed A and H shares. China Economic Issue, 6, 1–14.
CASGoogle Scholar
Pontiff, J. (2006). Costly arbitrage and the myth of idiosyncratic risk. Journal of Accounting and Economics, 42, 35–52.
10.1016/j.jacceco.2006.04.002
Web of Science®Google Scholar
Rosenthal, L., & Young, C. (1990). The seemingly anomalous Price behavior of Royal Dutch/Shell and Unilever N.V./PLC. Journal of Financial Economics, 26, 123–141.
10.1016/0304-405X(90)90015-R
Web of Science®Google Scholar
Spitzer, J. (2011). The persistence of pricing differentials in dual–listed companies in Hong Kong and China. Working paper, CMC Senior Theses.
Google Scholar
Stulz, R. (1999). Globalization, corporate finance, and the cost of capital. Journal of Applied Corporate Finance, 12, 8–25.
10.1111/j.1745-6622.1999.tb00027.x
Google Scholar
Shleifer, A., & Vishny, R. W. (1997). The limits of arbitrage. Journal of Finance, 52, 35–55.
10.1111/j.1540-6261.1997.tb03807.x
Web of Science®Google Scholar

Citing Literature

Volume26, Issue2

May 2021

Pages 212-240

Effects of cross-border capital flows on stock returns of dual-listed firms in mainland China and Hong Kong: Evidence from a natural experiment

Abstract

REFERENCES

Citing Literature

References

Information

About Wiley Online Library

Help & Support

Opportunities

Connect with Wiley

Effects of cross-border capital flows on stock returns of dual-listed firms in mainland China and Hong Kong: Evidence from a natural experiment

Abstract

REFERENCES

Citing Literature

References

Related

Information