Dual-Listed Shares and Trading

Clark Liu

Tsinghua University - PBC School of Finance

Mark S. Seasholes

Hong Kong University of Science & Technology (HKUST)

December 15, 2011

We study companies with dual-listed shares in China (mainland) and Hong Kong. When China has a short-sale ban, Chinese stock prices are 1.8x as high as Hong Kong prices (on average). Stock pairs with higher fundamental volatilities or more volatile order flows have higher price disparities (on average). The average stock pair's return difference is volatile and has a standard deviation of 8.8% per week. This paper shows that order flows can affect both a company's fundamental price and/or its transitory prices. In Hong Kong, transitory variance accounts for 39% of a stock's total variance. These results are surprising because the average market capitalization is over USD 8 billion for the Hong Kong-listed shares and the turnover is over 2.5x per annum. We exploit a quasi-natural experiment in which the short-sale ban is lifted for some Chinese stocks but not others. After the ban is lifted, the affected shares trade at parity. We estimate that lifting the short-sale ban in China (mainland) reduces weekly transitory volatility in Hong Kong by 49 bp per week because it enables a hedging mechanism.

Keywords: Dual-Listed Shares, Trading Imbalances, Cost of a Short-Sale Ban

JEL Classification: G12, G14

Not Available For Download

Date posted: March 15, 2012  

Suggested Citation

Liu, Clark and Seasholes, Mark S., Dual-Listed Shares and Trading (December 15, 2011). Available at SSRN: https://ssrn.com/abstract=2022556 or http://dx.doi.org/10.2139/ssrn.2022556

Contact Information

Clark Liu
Tsinghua University - PBC School of Finance ( email )
No. 43, Chengdu Road
Haidian District
Beijing 100083
Mark S. Seasholes (Contact Author)
Hong Kong University of Science & Technology (HKUST) ( email )
Clear Water Bay, Kowloon
Hong Kong
+852 2358-7668 (Phone)
HOME PAGE: http://www.seasholes.com
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