Abstract
I examine the impact of short sale constraints on the price premium of Chinese A-shares over Hong Kong H-shares (AH share premium) using a firm-fixed effect panel regression method. It shows that after controlling for variables related to other documented hypotheses, relaxation of short sale constraints in A-shares explains the narrowing AH share premium. Both the launch of CSI Index Future and the introduction of short sale pilot program in 2010 on mainland China stock markets mitigate short sale constraints, improve market efficiency, and therefore help reduce AH share premium.
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