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A0717
Title: Comovement in cross-listed securities: Evidence from AH shares Authors:  Yingjie Dong - University of International Business and Economics (China) [presenting]
Wenxin Huang - Shanghai Jiao Tong University (China)
Yiu-Kuen Tse - Singapore Management University (Singapore)
Abstract: Dynamics of shares cross-listed in segmented markets are studied by investigating (1) the comovement between the level of prices of the same firm, and (2) the unobserved common factors in individual price differences (of the same firm) between markets. Using Chinese AH shares data, we employ the C-LASSO method to identify heterogeneous latent group patterns of H-share discounts and separate AH firms into two groups. These data-driven group patterns are associated with both firm and market characteristics. The results also identify both long-run and short-run common factors in AH price differences. The presence of the nonstationary (long-run) common factor suggests that, although AH shares trade on the same underlying stock, AH prices generally diverge away from the supposed comovement equilibrium. Thus, arbitrageurs cannot gain profit by exploiting deviations between AH prices. The detected short-run common factor suggests that AH price gap is also influenced by non-fundamental common shocks. The common divergence behavior of AH prices is related to several market economic variables.