Effects of cross‐border capital flows on stock returns of dual‐listed firms in mainland China and Hong Kong: Evidence from a natural experiment

Abstract

This study analyses the effects of the Shanghai-Hong Kong Stock Market Connect policy on the price disparity between A-shares and H-shares of dual-listed companies (DLC).Using a difference-in-difference estimation method, we show that the policy decreases the relative twin cumulative abnormal returns of treated DLC by 3% and narrows the price gaps between A-shares and H-shares. We determine that the rising demand for H-shares, which are newly accessible by mainland investors, drives the price of H-shares up. By contrast, the price of A-shares remains unchanged. Further analysis reveals that cross-border capital flow is the main force of the policy.

Are Indian ADR Premiums Mispriced?

“…Literature suggests that for cross or dual-listed securities such as ADRs, the securities traded in developed economies carry higher prices ( Jithendranathan, Nirmalanandan, and Tandon (2000); Bae, Kwon and Li (2008); Stigler, Shah, and Patnaik (2010)). Information asymmetry and relative supply of securities traded in different markets can cause security price premiums (Beckmann, Ngo, and Wang (2015); Wu et al (2020)). Investors' outlooks on the economy can explain the price divergence (Zhang, Jia, and Lv (2020)).…”