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

Jia Wu, Jiada Lin, Zhenyu Yang and Luo Dong

Pacific Economic Review, 2021, vol. 26, issue 2, 212-240

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.

Date: 2021
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