Location of Trade, Ownership Restrictions, and Market Illiquidity: Examining Chinese A- and H-Shares
36 Pages Posted: 30 Jul 2003
We examine Chinese companies that issue both A-shares in mainland China and H-shares in Hong Kong. A-shares are restricted to mainland Chinese investors, while H-shares are available to Hong Kong and international investors. We find that H-shares exhibit significant exposure to Hong Kong market factors and behave more like Hong Kong stocks than mainland Chinese stocks. However, H-shares retain significant exposure to their domestic market and therefore provide foreign investors with diversification opportunities. We find a large time-varying H-share price discount relative to A-shares, and this discount is highly correlated with domestic and foreign market factors and relative market illiquidity.
Keywords: Cross Listing, Ownership Restriction, Market Sentiment, Illiquidity
JEL Classification: G10, G15
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