This paper studies trading and prices of dual/cross-listed stocks (i.e., equities from a single company that trade in more than one country). We focus on PRC rms with shares listed in Shanghai and Hong Kong. well-publicized index tracks the average price disparity across the two exchanges and shows signicant variation over time. We show that dierences in order imbalances (in Shanghai vs Hong Kong) explain contemporaneous changes in relative prices at daily and weekly frequencies. Our results help clarify liquidity-driven explanations from sentiment-based ones.

This paper investigates what drives the price disparity to vary in the “twin” shares (A shares traded largely by domestic investors while B- and H- shares traded mainly by foreign investors) in China. Extending the variance decomposition framework of Vuolteenaho (2002), we decompose the unexpected price disparity into two terms: difference in expected return news and difference in cash flow news. Our results show that difference in expected return news overwhelmingly dominates difference in cash flow news in driving the variation of the price disparity. This suggests that to a large extent, market or macro news, rather than firms’ specific news, moves the price disparity of the twin shares.

The presence of price disparity between A- and H- shares suggests that the two markets are segmented and thus allocation of capital is inefficient. In this paper, we attempt to identify the factors contributing to the price disparity, with a view to helping policymakers find solutions to the problem. Our results suggest that the disparity is caused by a combination of micro and macro factors. The fact that some of these factors are found to have played a crucial role in determining the disparity implies that reforms that can remove or reduce the segmentation can potentially bring considerable benefits by improving price discovery and market efficiency.