How does the exchange-rate regime affect dual-listed share price parity? Evidence from China’s A- and H-share markets

Joseph K.W. Fung, Eric Girardin () and Jian Hua
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Joseph K.W. Fung: Hong Kong Metropolitan University

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Abstract: This paper examines the impact of exchange-rate regime change on the price disparity of China's dual-listed stocks. We use four years of synchronous intraday data of 26 pairs of dual-listed RMB-denominated A-shares and their corresponding HKD-denominated H-shares. The sample period covers the 2005 and 2008 changes in the exchange rate regime. During that time, the Chinese authorities strictly prohibited short selling of stocks and tightly regulated capital flows. In contrast to the existing general findings, we find that the law of one price can be strengthened for dual-listed stocks (DLSs) in segmented capital markets under a flexible exchange rate regime; the disparity between the DLSs is reduced under the managed float compared to the pegged regime. Moreover, we find that the magnitude of the H-share discount is positively related to the expected RMB appreciation under managed float; however, under the pegged regime the relationship is negative.

Keywords: H-share discount; Dual-listed stocks; Market segmentation; Quasi arbitrage; Alternate exchange rate regime (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-cna
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Published in Journal of International Money and Finance, 2022, 129, pp.102738. ⟨10.1016/j.jimonfin.2022.102738⟩

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Journal Article: How does the exchange-rate regime affect dual-listed share price parity? Evidence from China’s A- and H-share markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03821210

DOI: 10.1016/j.jimonfin.2022.102738

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