Market Liquidity and Price Disparity: Evidence from Chinese Cross-Listed Firms

50 Pages Posted: 8 Jan 2021 Last revised: 15 Apr 2021

See all articles by Jun Liu

Jun Liu

Tilburg University - TIAS School for Business and Society

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Botao Fan

China Securities Co., Ltd.

Date Written: April 13, 2021

Abstract

This study investigates the association between stock liquidity and the H-share discount using a sample of Chinese cross-listed stocks in A- and H-shares markets. We examine the liquidity hypothesis by employing depth and trading activity variables. Our results suggest that stocks with a higher level in depth (active trading) of A-shares relative to H-shares are associated with less (more) H-share discount. Such effect is more pronounced in stocks that are non-state-owned and with low product market competition and ownership concentration. Moreover, we provide supportive evidence that the Stock Connect Program introduced in 2015 significantly dampens the association between stock liquidity and H-share discount. Overall, our findings highlight that cross-listed stocks' liquidity differences explain a large proportion of variation in price disparity and identify the stock-specific factors affecting the price disparity.

Keywords: market liquidity, price disparity, the law of one price

JEL Classification: C53, G12, G17

Suggested Citation

Liu, Jun and Wu, Kai and Jiang, Fuwei and Fan, Botao, Market Liquidity and Price Disparity: Evidence from Chinese Cross-Listed Firms (April 13, 2021). Available at SSRN: https://ssrn.com/abstract=3731149 or http://dx.doi.org/10.2139/ssrn.3731149

Jun Liu

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Fuwei Jiang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Botao Fan

China Securities Co., Ltd. ( email )

United States

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