The Impact of the Shanghai-Hong Kong Stock Connect Program on the A-H Share Premium

In this paper, we investigate the impact of the announcement and subsequent implementation of the Shanghai-Hong Kong Stock Connect Program in 2014 on the A-H share premium. Although most A-shares were valued more than H-shares before the implementation, their A-H premium increased rather than declined afterwards. We show that this puzzle is partially driven by the opposite trading actions of Hong Kong investors between the two event windows. Limited arbitrage possibility due to institutional differences between the two markets contributes to the persistent price disparity. We also find significant structural differences in market responses across the A- H stocks during the sample period. Our results have significant implications to dual-listed shares with institutional differences under partial market segmentation.