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Formation Mechanism and Dynamic Changes of the AH Premium: An Empirical Analysis Based on Multi-factor Models
- 1 IESEG School of Management
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Abstract
This paper investigates the formation mechanism and dynamic changes of the AH premium, which represents the difference in price between A-shares and H-shares of Chinese companies dual-listed at the Shanghai/Shenzhen and the Hong Kong stock exchanges. The study employs multi-factor econometric models to examine the effects of regulatory differences, investors’ sentiment, firm-specific fundamentals, and macroeconomic conditions on explaining both the collective and individual impacts on the AH premium. We find that capital control policies and regulatory differences are the major sources of the premium, with more stringent restrictions associated with higher premiums. Investors’ sentiment is also found to be significant as speculative retail trade at the A-share market drives the price discrepancy, particularly during periods of market volatility. Firm-specific fundamentals such as profitability or leverage also explain much of the price difference between the two markets. Macroeconomic conditions, such as exchange rates and interest rate differences, are also important in explaining the dynamic changes of the AH premium. The study provides important insights for arbitrage opportunities and market inefficiency and has policy implications for policymakers to enhance cross-market integration.
Keywords
AH premium, regulatory disparities, investor sentiment, capital controls, market integration
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Cite this article
Dong,W. (2024). Formation Mechanism and Dynamic Changes of the AH Premium: An Empirical Analysis Based on Multi-factor Models. Journal of Fintech and Business Analysis,1,31-35.
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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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Journal：Journal of Fintech and Business Analysis
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