TY - JOUR
T1 - How does the exchange-rate regime affect dual-listed share price parity? Evidence from China's A- and H-share markets
AU - Fung, Joseph K.W.
AU - Girardin, Eric
AU - Hua, Jian
N1 - Publisher Copyright:
© 2022 Elsevier Ltd
PY - 2022/12
Y1 - 2022/12
N2 - 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.
AB - 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.
KW - Alternate exchange rate regime
KW - Dual-listed stocks
KW - H-share discount
KW - Market segmentation
KW - Quasi arbitrage
UR - http://www.scopus.com/inward/record.url?scp=85138520009&partnerID=8YFLogxK
U2 - 10.1016/j.jimonfin.2022.102738
DO - 10.1016/j.jimonfin.2022.102738
M3 - Article
AN - SCOPUS:85138520009
SN - 0261-5606
VL - 129
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
M1 - 102738
ER -