H-share Market Research Articles

When local and foreign investors meet the Chinese government's risk perception about COVID-19

This paper explores the nuanced extreme market responses exhibited by segmented domestic and foreign investors in reaction to state media coverage of the COVID-19 pandemic in China’s A-share and H-share markets. Our findings indicate that an extreme increase (or decrease) in this unexpected attention is likely to lead to an extreme increase (or decrease) in stock prices. Domestic investors show increased sensitivity to an abnormal decrease in state media attention, whereas foreign investors are more responsive to an increase in this attention. An extreme unexpected decline in state media coverage of the pandemic significantly influences extreme fluctuations in the A-share market’s trading volume. In contrast, an abnormal increase in state media coverage of the pandemic tends to extremely decrease the H-share market’s trading volume. In the early panic phase, domestic (foreign) investors tend to reach a consensus more on abnormal declines (increases) in state media reports on the pandemic.

AH Share Price Spread: Investors Sentiment Study

This paper develops a comprehensive index of sentiment differences that can accurately describe the differences in investor sentiment between mainland China and Hong Kong to explain the higher premium of A-shares more than H-shares in the long run from the perspective of market differences in individual investor behavior. The results show that the higher the level of optimism of the A-share market relative to the H-share market, the higher the level of A-H share premium; Research shows that investors are more susceptible to the hazards of emotional elements during the market downturn phase, that emotional differences have an amplifying effect on the explanatory power of AH share premiums, and the higher the institutional share of stocks differences emotional, the more substantial explanatory power on AH share premiums. We should take notice of the critical role of irrational factors in price fluctuations and have certain psychological expectations about the fluctuations of stock prices caused by irrational factors.

Comparison Analysis of the Valuation Difference Between A-Share & Hong Kong Stock

Since the 21st century, China's economy has shown a medium-rapid development trend. To be specific, a large amounts of enterprises have chosen the financing strategy of dual listing in the Chinese market and the international capital market in the development and development process of China's capital market. As a matter of fact, with different trading mechanisms and valuation strategies everywhere, the share price of the same company in different markets is also biased. On this basis, in order to explore this phenomenon, this study selects Tsingtao Beer, the first local Chinese enterprise listed in the A-share market and H-share market in the A-share market, as the research object. The aim is to systematically evaluate the enterprise through the cash flow discount method. According to the analysis, this study compares and analyzes the reasons behind the stock price difference, and gives investors more scientific theoretical investment suggestions. Overall, these results shed light on guiding further exploration regarding to dual listing investment analysis.

Trading gap in holidays and price transmission: Evidence from cross-listed stocks on the A-share and H-share markets

Chinese public holidays of differing durations celebrated in mainland China and Hong Kong provide a unique trading gap when the A-share markets are closed but the H-share market is not. In this study, we examine how these non-overlapping trading gaps caused by holidays affect price transmission between cross-listed stocks in the A-share and H-share markets. We find that the price movements of H-shares during trading gaps are positively associated with post-holiday drifts in the A-share markets. This positive association is stronger when the length of non-overlapping holidays is longer, and when firms have a weaker connection to Hong Kong market. Moreover, our evidence reveals that investor distraction rather than sentiment during holiday periods may be the reason for this positive association. Finally, our results show that a portfolio trading strategy based on our findings can be profitable, indicating the economic magnitude of our findings.

Soccer Match Results and Sponsor Stock Returns - An Analysis Based on Behavioral Economics Perspective

Using the event study method, the impact of Chinese Super League match results on title sponsors' share prices was empirically analysed from a behavioral economics perspective. The main section considers the impact of variables such as win-loss relationship, home and away factors, Friday's important match day and the last five rounds on the A-share market and the H-share market respectively, and draws conclusions. The article aims to explore the possible patterns of fluctuations in the market capitalization and share price of sponsors following sponsorship of football clubs in the context of gold-dollar football, influenced by the results of matches. Can the outcome of a Chinese Super League match affect the value of a sponsor's shares? If so, what kind of investor sentiment is reflected behind the fluctuations in share price? What can be done to improve the effectiveness of corporate sponsorship? To this end, this paper analyses the issue from the perspective of behavioral economics, combined with the event study method, in order to provide theoretical references for the study of Chinese football sponsorship.

Do CSR awards enhance firms’ market value? Evidence from China

PurposeThis study aims to examine the impact of corporate social responsibility (CSR) awards on firms’ market value considering these awards as a signal and proxy for the effectiveness of CSR practice.Design/methodology/approachThere are 342 announcements of CSR awards in China from 2006 to 2017 screened and analyzed using the event study methodology.FindingsThe stock market reacts significantly negatively to CSR award announcements in the short term. Firms that are state-owned, belong to the manufacturing industry, outside east China, repeatedly win awards and are listed in the Chinese H-share market, experience a stronger stock market reaction. Interestingly, the long-term stock returns of award winners are significantly positive for multiyear holding periods.Practical implicationsThe findings offer stakeholders clear guidelines on how to manage communications in the market to extract enhanced financial performance from CSR award announcements.Originality/valueThis study chooses CSR awards as a proxy for the effectiveness of excellent CSR practice. This study also contributes to the CSR literature by analyzing how investors use the award information to make investment decisions.

Capital market liberalization and green innovation for sustainability: Evidence from China

This paper investigates the impact of capital market liberalization on green innovation. In our theoretical examination, we empirically analyze data on 1,693 listed firms in China in 2008–2019, using a time-varying difference-in-differences model. The results show that capital market liberalization promotes green innovation in China and has a stronger effect on green invention patents than green utility model patents. Heterogeneity analysis results show that the positive effects varies across firms with different types of ownership or scale as well as between AH cross-listed and non-AH cross-listed firms.11AH cross-listed firms refers to companies listed on both China’s A-share market and H-share market. Finally, this research finds that capital market liberalization spurs green innovation through both reducing financing constraints and information disclosure quality effects.

Time-Varying Causalities in Prices and Volatilities between the Cross-Listed Stocks in Chinese Mainland and Hong Kong Stock Markets

Due to the heterogeneity of investor structure between the Chinese mainland stock market (A-share market) and the Hong Kong stock market (H-share market) as well as the limitations on arbitrage activities, most cross-listed stocks in the two markets (AH stocks) have the characteristics of “one asset, two prices”, in which AH stocks with the same vote rights and dividend streams are traded at different prices in different markets. Based on the VAR (LA-VAR as well) model and a four-variable system including AH stock indices (AHXA, AHXH), the China Securities Index 300 (CSI 300), and the Hang Seng Index (HSI), this paper applies a new time-varying causality test to examine the causalities in prices and volatilities for two pairings (AXHA-AHXH pairing and CSI 300-HSI pairing) during the sample period spanning from 4 January 2010 to 21 May 2021. The empirical results exhibit statistically significant time-varying causalities of the two pairings. Specifically, at the price level, AHXH has a significant negative causal effect on AHXA from October 2017 to February 2020 except for several months in 2018, while AHXA merely has a negative impact on AHXA during a short period from March 2017 to May 2017. Of note, the direction of causalities in volatilities between AHXA and AHXH reverses. A positive causality is found from AHXA to AHXH at the 5% significance level during the period of April 2014 through May 2021, while no causality is detected in the opposite direction during the whole sample period. Meanwhile, the volatilities of CSI 300 significantly Granger cause those of HSI over the whole sample period, but not vice versa. Implications of our results are discussed.

The Revealed Inefficiencies of the China A-H Premium

The ratio of the price of a dual-listed A-share to the price of its corresponding H-share (the A-H premium) is persistent both in aggregate and cross-sectionally. The A-H premium for a given stock converges to a universal equilibrium A-H premium but more strongly to a stock-specific equilibrium A-H premium. The latter indicates different long-run investor preferences for different stocks in the onshore A-share market versus the offshore H-share market. The authors provide evidence that this differential is driven by the high retail investor participation in the China A-share market. They propose two new factors based on the divergence of a stock’s A-H premium from its universal and stock-specific equilibrium A-H premium. These two factors earn significant Fama–French three-factor alpha and earn alpha against each other. Lastly, the authors show that a dual-listed A-share is less efficiently priced than its H-share counterpart. <b>TOPICS:</b>Security analysis and valuation, emerging markets, analysis of individual factors/risk premia <b>Key Findings</b> ▪ Chinese stocks that are dual-listed as A-shares and H-shares tend to have large, persistent A-share premiums relative to their H-share counterparts. ▪ A strategy of increasing weight in firms with low A-H premiums and decreasing weight in firms with high A-H premiums tends to earn excess returns over a capitalization-weighted benchmark. ▪ The A-H premium is driven primarily by inefficiencies in A-share pricing, caused by specific retail preferences from the largely retail A-share market.

Short selling patterns in cross-listed stocks

We examine if differences in short selling volumes and the information impounded by short sells can contribute to explaining pricing differences which exist between the A- and H-share markets in China. In particular, we argue and also find that short selling around earnings announcements occurs primarily on the H-share market, which then leads to differences in the post-announcement drift of cross-listed stocks in the A- and H-share markets. In addition, we also show that these trades are, at least in part, driven by private signals that likely relate to firms which are more opaque and further away from a major financial exchange. Our findings have direct implications for explaining the A- and H-share pricing discrepancy by showing a potential channel through which negative news is asymmetrically impounded into H-share prices.

Time-varying asymmetric volatility spillover between global markets and China’s A, B and H-shares using EGARCH and DCC-EGARCH models

This paper investigates the volatility spillover and dynamic conditional correlation between three types of China’s shares including A, B and H-shares with 12 major emerging and developed markets from 2002 to 2017 using EGARCH and multivariate DCC-EGARCH models. Both models found that Chinese equities are more related with their neighbouring countries such as Singapore, Japan, Australia and ASEAN-5 than with US, Germany and UK. The EGARCH model, with an auxiliary term added to capture the volatility spillover, found no volatility spillover between A-share markets and other advanced and emerging markets during the GFC and extended-crisis periods while this behaviour is not observed for B-share and H-share markets. However, the multivariate DCC model found strong evidence of contagion effect in both return correlations and volatility spillover for all China’s markets. In addition, both models found increased regional and global integration in A-share and B-share markets but not the H-share market. Finally, the results from both models provide clear evidence of distinct behaviours associated with return and volatility spillover in these three share types, suggesting foreign investors should consider the heterogeneity in volatility spillover and return correlations of these Chinese share types when forming investment strategies.

The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect

This study examines the sustainability of financial integration between China (represented by Shenzhen and Shanghai) stock markets and Hong Kong stock market over the period of pre and post launch of the Stock Connect Scheme. This paper aims to fill the gap in the financial literature by providing empirical research on the dynamics of the financial integration process, and examining the sustainability of financial integration among the three Chinese stock markets. We apply cointegration and both linear and nonlinear causalities to investigate whether the Shanghai–Hong Kong Stock Connect has any impact on both market capitalizations and market indices of Hong Kong, Shanghai, and Shenzhen markets. Through cointegration tests and linear Granger causality techniques, it was found that the stock markets from mainland China are increasingly influencing the Hong Kong stock market after the introduction of the Stock Connect Scheme; however, when using nonlinear Granger causality analysis for confirming China market dominance, the result shows an reverse relationship whereby the Hong Kong stock market is still relevant to understand and predict China stock market after the introduction of the Stock Connect Scheme. Overall, our findings support the view that the Shanghai–Hong Kong Stock Connect has a significant impact on both market capitalizations and market indices of the Hong Kong, Shanghai, and Shenzhen markets, but Hong Kong stock market is still relevant to understand and predict China stock market after the introduction of the Stock Connect Scheme. The change in share premium difference between mainland China’s domestic A-share markets and Hong Kong’s H-share market could change investors’ appetites or sentiments. Further research includes examining whether there is any functional relationship including nonlinear relationship and studying the dynamic drivers of the relationships.

Asymmetric risk transmission effect of cross-listing stocks between mainland and Hong Kong stock markets based on MF-DCCA method

With the implementation of “Shanghai–Hong Kong Stock Connect” and “Shenzhen–Hong Kong Stock Connect,” the mainland and Hong Kong stock markets are becoming more closely linked. Based on the A+H cross-listed A-share and H-share market indices, this study employs asymmetric multifractal cross-correlation methods to analyze the asymmetric cross-correlation between the A-share and H-share markets from diverse perspectives of different ups and downs and various conduction directions with 79 sample stocks from January 1 a=2004 to May 26, 2017. Empirical results show that the A+H shares have long memory in different trends, which is stronger in the downward trend of stock price. It indicates that regardless of which market with A+H shares showing a downward trend are on, driving the future on the local market and the corresponding cross-listed market show a downward trend is easier than driving the rising trend. In addition, a bidirectional risk conduction effect exists between A and H shares, and the A-share market has a strong transmission effect on the H-share market.

Short selling and financial reporting quality: Evidence from Chinese AH shares

This paper investigates whether the monitoring function of short sale on firms’ financial reporting quality is conditional on the regulatory quality of the markets, and the strength of internal control at firm level. Using data on Chinese cross-listing AH-shares over the period of 2010–2015, we find that short sale restricts accrual earnings management in A-share markets but not in the H-share market. This difference is explained by the relative inferiority of the A-share markets’ regulatory quality, and is accentuated when the cross-listing AH-share firms have weak internal control. Taken together, the results indicate that short-sellers impose strong monitoring on reporting quality when they perceive a great likelihood of managerial expropriation in a weak legal environment, or in firms with weak internal control.

Informed Short Selling in Cross-Listed Stocks

We examine if differences in short selling volumes and the information impounded by short sells can contribute to explaining pricing differences which exist between the A- and H-share markets in China. In particular, we argue and also find that informed short selling around earnings announcements occurs primarily on the H-share market, which then leads to differences in the post-announcement drift of cross-listed stocks in the A- and H-share markets. In addition, we also show these informed trades are, at least partly, driven by private signals that are likely to relate to firms which are more opaque and further away from a major financial exchange. Our findings have direct implications for explaining the A- and H-share pricing discrepancy by showing a potential channel through which negative news is asymmetrically impounded into H-share prices.

Cross-listing, firm-specific information, and corporate governance: Evidence from Chinese A-shares and H-shares

We examine the impact of cross-listing on firm-specific information utilizing the unique features of the Chinese capital markets. By separating the trading activity of domestic Chinese investors from that of foreign non-Chinese investors, we are able to isolate each investor group's relative ability to impound firm-specific information into stock prices. We show that the cross-listed H-shares traded by foreign investors incorporate significantly more firm-specific information than their A-share counterparts traded by domestic Chinese investors. We find a similar pattern between H-shares and A-shares even after a 2007 regulatory change that allowed domestic Chinese investors to trade in the H-share market. This finding suggests that while institutional factors (e.g., stricter listing rules, stronger investor protection) can explain some of the benefits of cross-listing, foreign investors' ability to utilize firm-specific information plays a separate and distinct role in generating cross-listing benefits. The level of information improvement due to foreign investors depends on the quality of the cross-listed firm's corporate governance.

Value Relevance of Accounting Information: Evidence from an Emerging Market

Without making any distinction of the applicable accounting standards, this paper investigates, firstly, the value relevance of accounting information from 1999 to 2012 in different segments of the Chinese stock market. This investigation includes A-shares, prepared under Chinese Accounting Standards (CAS) for domestic firms; B-shares, prepared under either the International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) for both domestic and overseas firms; and H-shares prepared under either the IAS or Hong Kong GAAP for Hong Kong and overseas firms. Then, the paper examines whether or not the converged IFRS with CAS, applicable from 2007 onwards, is more value relevant when compared with prior to the 2007’s standards (CAS, IAS, Hong Kong GAAP for A-, B-, and H-share markets, respectively). Based on 34,020 firm-year observations and after controlling for industry- and year-fixed effects, the findings suggest that accounting information is value relevant with A- and B-share markets, whilst it is partially relevant with the H-share market. The paper finds that the converged IFRS with CAS is more value relevant in A- and B-shares and it is partially more value relevant with the H-share market. These findings have implications for both policymakers and investors since they provide further empirical evidence for the current policy procedure which harmonizes local GAAP with IFRS.

Is pairs trading profitable on China AH-share markets?

Using the daily data for 38 companies during the period of 2009–2013, this article examines the long-run equilibrium between the stock prices of firms dual listed on A-share market in China and H-share market in Hong Kong, and exploits the arbitrage opportunity for investors. We propose a simple self-financing trading strategy which is derived from the short-run disequilibrium price path. Our results demonstrate that cointegration and error-correction mechanism exist between the A-share and the H-share. In addition, our proposed trading strategy actually beats the markets and provides superior performance in terms of Sharp Ratio and value at risk statistics. Further analysis on international asset pricing model demonstrates that our trading strategy yields an average annualized excess return of about 17.6% when adjusted for the systematic risk.

Value relevance of accounting information: Evidence from an emerging market

Without making any distinction of the applicable accounting standards, this paper investigates, firstly, the value relevance of accounting information from 1999 to 2012 in different segments of the Chinese stock market. This investigation includes A-shares, prepared under Chinese Accounting Standards (CAS) for domestic firms; B-shares, prepared under either the International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) for both domestic and overseas firms; and H-shares prepared under either the IAS or Hong Kong GAAP for Hong Kong and overseas firms. Then, the paper examines whether or not the converged IFRS with CAS, applicable from 2007 onwards, is more value relevant when compared with prior to the 2007's standards (CAS, IAS, Hong Kong GAAP for A-share, B-share, and H-share markets, respectively). Based on 34,020 firm-year observations and after controlling for industry- and year-fixed effects, the findings suggest that accounting information is value relevant with A- and B-share markets, while it is partially relevant with the H-share market. The paper finds that the converged IFRS with CAS is more value relevant in A-shares and B-shares and it is partially more value relevant with the H-share market. These findings have implications for both policymakers and investors since they provide further empirical evidence for the current policy procedure which harmonizes local GAAP with IFRS.

Empirical analysis: stock market prediction via extreme learning machine

How to predict stock price movements based on quantitative market data modeling is an attractive topic. In front of the market news and stock prices that are commonly believed as two important market data sources, how to extract and exploit the hidden information within the raw data and make both accurate and fast predictions simultaneously becomes a challenging problem. In this paper, we present the design and architecture of our trading signal mining platform that employs extreme learning machine (ELM) to make stock price prediction based on those two data sources concurrently. Comprehensive experimental comparisons between ELM and the state-of-the-art learning algorithms, including support vector machine (SVM) and back-propagation neural network (BP-NN), have been undertaken on the intra-day tick-by-tick data of the H-share market and contemporaneous news archives. The results have shown that (1) both RBF ELM and RBF SVM achieve higher prediction accuracy and faster prediction speed than BP-NN; (2) the RBF ELM achieves similar accuracy with the RBF SVM and (3) the RBF ELM has faster prediction speed than the RBF SVM. Simulations of a preliminary trading strategy with the signals are conducted. Results show that strategy with more accurate signals will make more profits with less risk.