Return & Volatility Disparity, Slow Adjustment Process in Chinese Triple-Listed Firms

Abstract

Chinese firms that cross-list in China A-share, Hong Kong and New York markets operate in a complexenvironment. Theoretically, when one firm is trading on multiple exchanges, the shares across exchanges are expected to be perfect substitutes and when they are not, arbitrage opportunity exists. Using quantitative methods, this study explores whether there are return and volatility disparities, which market is the dominant one, whether there is long-run relationship between these markets, and how at which prices are restored in equilibrium. Volatility discrepancies and a relatively slow adjustment process are observed. Although the majority of cross-listed Chinese firms are perfect substitutes, there is a window of arbitrage opportunity for a small subset of firms.