Capturing A-Share and H-Share Price Differences with a Rotating Index

Summary

This study proposes a passive index that selects between the A-share and H-share of the same company according to which listing is cheaper after currency adjustment. It examines price gaps across dual-listed Chinese companies, using panel regression to relate the gap to industry, company size, and time period. The reported associations include smaller gaps for financial firms and larger companies; an A/H premium series weighted by free-float market capitalization is also reported as stationary under an ADF test.

A historical simulation over 2006–2015 compares the rotating index with A-share benchmarks, testing different review frequencies and buffer sizes. The study reports higher returns and lower volatility for the simulated indices, alongside stronger profitability, book-to-market, and dividend yield measures. Faster reviews and narrower buffers raise turnover, and the reported returns exclude trading costs. Results rely on a historical sample and on the premise that cross-market price differences tend to converge; frictions and constraints may affect implementation.

Key ideas

• At each index review, select the cheaper listing of a dual-listed company, based on its A-to-H price ratio.
• The study finds that industry, company size, and sample period are associated with A/H price gaps.
• It uses free-float capitalization weights and tests the premium series for stationarity.
• Historical simulations report higher returns and lower volatility than A-share benchmarks across tested settings.
• More frequent reviews and narrower buffers increase turnover, while reported returns exclude trading costs.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.