The Expectation of Exchange Rate and Foreign Share Discount: The Evidence from Hong Kong H-Share Discount

Kevin Zhao ()
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Kevin Zhao: Department of Economics and Finance, Middle Tennessee State University, Murfreesboro, TN 37132, U.S.A.

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 01, 1-23

Abstract: This paper examines the causal relationship between the expectation of exchange rate and the Hong Kong H-share discount relative to China A-shares over the period 2006–2015, during which the Chinese currency transitioned from a pegged regime to a managed floating regime. Results show that the expected appreciation of the Chinese yuan leads to the decline in the H-share discount after controlling for the effect of different market sentiments and several other factors that explain the foreign share discount in the existing literature. Our results remain robust after adopting alternative model specifications.

Keywords: Foreign share discount; exchange rate; market sentiments; QDII (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500072

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