A-H Premium and the Shanghai-Hong Kong Stock Connect

Abstract: This paper examines how the Shanghai-Hong Kong Stock Connect (SHHK) affects the A-H share price premium and whether the policy impact depends on market efficiency. Using monthly data for 67 Shanghai-listed A-H dual-listed firms from January 2011 to May 2019, we estimate a dynamic panel model with two-step system GMM to account for premium persistence and potential endogeneity. Market efficiency is proxied by trading-friction measures derived from daily high-low price ranges. We find that the implementation of SHHK is associated with an average 18.4% increase in the A-H premium. However, this effect is heterogeneous. The marginal policy impact is stronger for firms operating in less efficient markets and weaker for those with higher efficiency, indicating that pre-existing trading frictions condition the policy outcome. We find no significant response at the announcement stage. Placebo tests and alternative efficiency measures confirm the robustness of the efficiency-dependent effect. Overall, the results highlight the role of the information environment in shaping liberalization outcomes.