Academic journal article Global Journal of Business Research

Information Transmission Effects between a and H Dual Listing Shares

Academic journal article Global Journal of Business Research

Information Transmission Effects between a and H Dual Listing Shares

Article excerpt

ABSTRACT

The current study, taking A and H dual listing shares as the participants, aimed to investigate the effect of China s opening-up policy on the information transmission among dual listing shares. The results indicated that China's opening-up policy strengthened the integration of dual listing share and attracted more companies to collect funds via dual listing, making information transmission more frequent. Overall, with policies gradually unfolded, the co-movement between A and H shares grew closer, leading to the consistency in price discovery contribution ratio of A and H dual share markets. On the other hand, regression was employed to analyze factors resulting in the price difference of A and H stocks. The results revealed that information asymmetry was the most significant factor, followed by liquidity and exchange rate.

JEL: C32, G18

KEYWORDS: A Shares, H Shares, Dual Listing, Price Discovery, Information Share Model

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The Chinese stock markets have grown rapidly since 2000. Despite controls from policies and regulations, the stock markets in Shanghai and Shenzhen still attract a huge surge of investments, domestic as well as foreign. The stock markets are gradually moving from a closed one to an open market. The foreign fund into A shares and domestic fund into H shares have also shifted to supervised limited capital flow. The energy of a capital market lies in the capital flow, and capital inflow and outflow inevitably affect stock price. With China's opening-up policy towards stock markets, capital flow and information transmission have been the direct factor leading to the price co-movement of A and H shares.

The response and co-movement to information of the stock prices of an asset in different markets serve to explain the relationship and influence among different markets. Finding this kind of relationship and pattem and investigating factors of co-movement among different capital markets benefit research concerning the use of one market to predict the future stock price of another market, the information transmission among markets, and the relationship of response rate to new information between the two markets. One of the major functions of the secondary market is price discovery. When a company enters the market simultaneously in several exchanges, price discovery is no longer domestic; instead, its stock price is determined by all market information. When market information influences asset price, it means that the market has made a contribution to the asset price. The greater the contribution, the faster the stock price of the asset responds to new information. Hasbrouck (1995) stated that price discovery is a process in which the financial market digests new information and adjusts to balanced price. If the capital market could swiftly respond to the impact from new information, the market would immediately transmit the information to other markets. Different response rates of stock price to information were the main factor that determined the lead-lag relationship among stock markets (Mech, 1993; Hameed, 1997).

Stock markets in Mainland China have headed for internationalization and liberalization with the following measures: the establishment of stock exchanges and securities commission, the enforcement of Securities Acts, the approval of domestic investment in B shares, the overseas listing of large state-run companies, the practice of QFII (Qualified Foreign Institutional Investors) System, the conclusion of CEPA (Mainland and Hong Kong Closer Economic Partnership Arrangement), the implementation of QDII (Qualified Domestic Institutional Investor), the opening of foreign capital to underwrite/tutor companies for listed ones, and the announcement of Through Train Plan.

Since late 1970s, foreign banks and transnational financial institutions have been swarming into Hong Kong due to a series of financial liberalization policy adopted by the Hong Kong government, including the removal of regulations of foreign exchange and gold, the act to unfreeze bank license, and the cancellation of deposit interest tax. …

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