Understanding AH Premium in China Stock Market
Topic: |
Understanding AH Premium in China Stock Market |
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Time & Date: |
10:30am-12:00pm, 2017/12/4 |
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Venue: |
Room 502, Daoyuan Building, CUHK(SZ) |
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Speaker: |
Tongbin Zhang, Shanghai University of Finance and Economics |
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Detail: |
There are 88 companies (AH-share) dual-listed in both China mainland stock market (A-share) and Hong Kong stock market (H-share) accounted for 20% of total A-share. The .Shanghai-Hong Kong Stock Connect.pro- gram starting at November, 2014 makes previously two segmented markets. Shanghai and Hong Kong stock markets-connected. The price difference of AH-share in Shanghai and Hong Kong stock markets, measured by Hang Seng China AH Premium Index, persistently divergences instead of converging , and even reaches 50% higher in Shanghai market. We have shown that present-value asset pricing models with heterogeneous agents cannot generate any price difference. Transaction cost and different dividend taxes between Shanghai and Hong Kong markets also quantitatively fails to explain such high and volatile AH premium. We, hence, propose an ‘Internal Rationality’ learning model, in which agents don.t know the pricing function from fundamentals to the stock prices and have different subjective beliefs about tomorrow’s capital gains in Shanghai and Hong Kong markets. Our learning model can successfully generate data-like weekly AH premium. We also show that convergence traders with strategy short in Shanghai and long in Hong Kong will lose money with 33% probability. |