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The Journal of Index Investing

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Capturing the Chinese A-Shares and H-Shares Price Anomaly

Eddie Pong, Peter Gunthorp and Alex Chen
The Journal of Beta Investment Strategies Spring 2017, 7 (4) 60-74; DOI: https://doi.org/10.3905/jii.2017.7.4.060
Eddie Pong
is the director of Research and Analytics at FTSE Russell in Hong Kong.
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  • For correspondence: epong@ftserussell.com
Peter Gunthorp
is the managing director of Research and Analytics at FTSE Russell in London, UK.
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  • For correspondence: pgunthorp@ftserussell.com
Alex Chen
is a senior research analyst in Research and Analytics at FTSE Russell in Hong Kong.
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  • For correspondence: achen@ftserussell.com
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Abstract

With the recent revisions of the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) programs, together with the introduction of the Stock Connect program, the mutual accessibility of the Chinese onshore and offshore equity markets is expected to be enhanced. We examine the characteristics of the A- and H-shares price differentials using the data for dual-listed companies during the 2006–2015 period. We find that the price differential narrows in the latter part of the sample period, which coincides with the enhancement of mutual access of both markets. We propose an A/H-share selection mechanism to identify the share class with the lower price and form an A/H-share class index. We show that the mechanism can deliver improved index characteristics compared with a market-capitalization-weighted China A-shares benchmark. The results are robust to different choices of parameters in terms of buffer zone and rebalancing frequency.

TOPICS: Fundamental equity analysis, legal/regulatory/public policy, emerging

  • © 2017 Pageant Media Ltd
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The Journal of Index Investing: 7 (4)
The Journal of Beta Investment Strategies
Vol. 7, Issue 4
Spring 2017
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Capturing the Chinese A-Shares and H-Shares Price Anomaly
Eddie Pong, Peter Gunthorp, Alex Chen
The Journal of Beta Investment Strategies Feb 2017, 7 (4) 60-74; DOI: 10.3905/jii.2017.7.4.060

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Capturing the Chinese A-Shares and H-Shares Price Anomaly
Eddie Pong, Peter Gunthorp, Alex Chen
The Journal of Beta Investment Strategies Feb 2017, 7 (4) 60-74; DOI: 10.3905/jii.2017.7.4.060
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  • Article
    • Abstract
    • THE A-SHARES AND H-SHARES MARKET
    • THE A/H PRICE DIFFERENTIALS
    • CAPTURING THE A/H ANOMALY
    • EMPIRICAL FINDINGS
    • CONCLUSION
    • ENDNOTES
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