The impact of Shanghai–Hong Kong Stock Connect policy on A-H share price premium

• We show the effectiveness of the Shanghai-Hong Kong Stock Connect policy in reducing the A-H share price gap.
• Contrary to the market sentiment that the policy disappoints as it fails to close the price gap, our results show that after controlling for company-specific factors, market performance and investor preferences, the new policy is indeed effective in reducing the A-H share premium.
• New factors such as corporate governance are also found to be important in determining the A-H share premium.

This paper empirically investigates the A-H share premium puzzle in the perspective of the effect of Shanghai–Hong Kong Stock Connect policy using a panel data of 55 dual-listed companies from January 4th, 2013 to December 31st, 2015. After controlling factors measuring company-specific factors, market performance and investor preferences, the empirical results show that the Shanghai–Hong Kong Stock Connect policy can significantly reduce the A-H share premium for the dual-listed companies in Shanghai and Hong Kong markets. Better corporate governance is also found to reduce the A-H share premium.