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The relationship of high frequency interactions between Chin | 17672
International Research Journals

The relationship of high frequency interactions between Chinese A-shares and Hong Kong H-shares of dual-listed companies

Abstract

Xia Pan, PhD, Kebing Li, Jeffrey E. Jarrett, PhD

Previous studies showed that Chinese equity markets interact with those other equity markets in Asia and the larger equity markets of developed Western Nations. Established in 1992, the Chinese equity markets grew to become the second largest equity markets after the United States. The Chinese equity changed in an evolutionary manner with the decrease in State owned shares and from CEPA to QDII. However, equity markets still display somewhat immature characteristics. Hence, our purpose is to determine the co integration of Chinese A-shares with that of Hong Kong H-shares, and on how it relates to the functions of finance, including investment strategy and/or arbitrage. Implementing Granger Causality (GE) and the Vector Error Correction Model (VECM), this manuscript pragmatically studies on 44 cross-listed firms. The data examined is high frequency and, in turn, we utilize arbitrage to confirm the co-movement of cross-listed companies under the application of VECM. The results indicate an expected degree of correlation between the two equity markets in the short-term. For the long-term, we find co integration for the firms sampled in the two equity markets. This last result suggests slow movement in the adjustments by the equity markets to each other. We apply time series analysis including unit root and co-integreation tests and vector auto regressions to study the statistical properties of the data series considered.

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