The Interrelationships of Dual Listed Stocks in Hong Kong ...

The Causal Relationship of Dually Listed Stocks The Interrelationship of Dual Listed Stocks in Hong Kong and China
The Interrelationships of
Dual Listed Stocks
BY
FINANCE Option
An Honours Degree Project Submitted to the School of Business in Partial Fulfillment
Of the Graduation Requirement for the Degree of Bachelor of Business Administration (Honours)
Hong Kong Baptist University Hong Kong
April 2005
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The Interrelationship of Dual Listed Stocks in Hong Kong and China
Acknowledgement
I would like to take this opportunity to express my greatest gratitude to my
project supervisor Dr. Billy Mak for his patient, devotional and helpful guidance
and advices during the semester.
2
Abstract
By virtue of the close economic and political relationship between China and Hong Kong, I
examined the causality of dual listed stocks in both Hong Kong and China by the
autoregressive model (AR) and Granger Causality Test. They are H-Shares in Hong Kong and
A-Shares in China. There are total 29 dually listed stocks in 2005. I studied the causality of the
daily returns of these stocks. The sample period is from 1994 to 2005. In general, H-Shares
play a more important role in influencing A-Shares. Specifically, 13 stocks in Hong Kong are
Granger Cause China. 4 stocks in China are Granger Cause Hong Kong. 3 of them are
mutually caused and 9 of them are independent to each other.
3
1. Introduction
1.1 Background Information
Globalization is processing quickly over the world. Financial markets are also
developing rapidly under this system. The financial markets in general and the
equity market in particular have now become more closely interlinked the world
over than ever before despite the differences in risk and return perceptions of
the markets or the country profiles.
The concept of diversification is also widely spreaded in recent decades. In
order to diversify, investors try to invest in different countries. At the meanwhile,
companies also try to list their stocks in more than one country in order to gain
competitiveness and broaden the capital base or to improve liquidity of the
stocks. In China, increasing numbers of companies list their stocks in more
than one country. One of the choices is to list in Hong Kong. Being the 7th
largest stock market over the world and the close relationship with China,
capital can be lured from China easily. The other choices of listing areas may
be United States, Germany or France. These Chinese companies list their own
stocks in China as well as in Hong Kong. All of these stocks listed in Hong
Kong are so called H-shares. ‘H’ stands for Hong Kong. There are 109
H-shares in Hong Kong at the end of 2004. However, only 29 of them are
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dually listed. 23 are listed in Shanghai Exchange (SSE) and 6 are in Shenzhen
Exchange (SZE).
The China economy is developing quickly in this decade. Its stocks markets
are also expanding rapidly. It is believed that more Chinese companies will list
their stock in Hong Kong. The Hang Seng China Enterprise Index (H-Share
Index) climbed up from 1000 points in 2000 to more than 5000 points at the
end of 2004. Investors in Hong Kong are putting more attention to China
stocks owing to their prospectus. Investors may have one question: Can we
get any hints for trading from looking into the relationship of two stocks? I
believe not only me, many investors will also be interested in looking at the
returns and causality relation of them in order to make a better investing
decision. Therefore, in this paper, I select the 29 stocks dually listed both in
Hong Kong and China to perform the research.
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Table 1a - Dually listed stocks in China and Hong Kong (sorted by market value)
in Hong Kong and Shanghai Weighting Mkt Cap Observations Code of HKSE Code of SSE
China Petroleum and Chemical Corp # 13.4% 53278 961 386 600028 Huaneng Power International Inc # 4.1% 17874 870 902 600011 Yanzhou Coal Mining Co Ltd # 3.3% 13403 1771 1171 600188 China Shipping Development Co Ltd # 2.2% 8748 755 1138 600026 Sinopec Shanghai Petrochemical Co Ltd # 1.8% 7456 2983 338 600688 Jiangxi Copper Co Ltd # 1.2% 4886 849 358 600362 Maanshan Iron and Steel Co Ltd # 1.2% 4766 2940 323 600808 Jiangsu Expressway Co Ltd # 1% 4338 1107 177 600377 Tsingtao Brewery Co Ltd # 0.8% 3357 3034 168 600600 Anhui Conch Cement Co Ltd # 0.8% 3292 818 914 600585 China Southern Airlines Company Ltd # 0.8% 2994 443 1055 600029 Anhui Expressway Co Ltd N/A 2256 592 995 600012 China Eastern Airlines Corporation Ltd # 0.5% 2178 1941 670 600115 Shenzhen Expressway Co Ltd # 0.5% 2130 862 548 600548 Sinopec Yizheng Chemical Fibre Co Ltd # 0.5% 2044 2612 1033 600871 Dongfang Electrical Machinery Co Ltd N/A 1224 2476 1072 600875 Tianjin Capital Environmental Protection Co Ltd N/A 935 2554 1065 600874 Guangzhou Pharmaceutical Co Ltd N/A 440 1092 874 600332 Guangzhou Shipyard International Co Ltd N/A 354 2990 317 600685 Nanjing Panda Electronics Co Ltd N/A 305 2193 553 600775 Luoyang Glass Co Ltd N/A 255 2466 1108 600876 Beiren Printing Machinery Holdings Ltd N/A 250 2854 187 600860 Jiaoda Kunji High-Tech Co Ltd N/A 79 2943 300 600806 in Hong Kong and Shenzhen Weighting Value Observations Code of HKSE Code of SSE
Angang Newsteel Co Ltd # 1% 4161 1904 347 898 Jilin Chemical Industrial Co Ltd N/A 2219 2217 368 618 Guangdong Kelon Electrical Holdings Co Ltd N/A 823 1502 921 921 Jingwei Textile Machinery Co Ltd N/A 356 2177 350 666 Shandong Xinhua Pharmaceutical Co Ltd N/A 179 2004 719 756 Northeast Electric Development Co Ltd N/A 173 2306 42 585
# : H-Shares Index constituent stocks
Mkt Cap is the market capital measured in millions Hong Kong dollar at 1 April, 2005 in Hong Kong
Weighting is the constituent weighting of H-Shares Index at 28 February, 2005
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1.2 Objective of my study
When there are two variables, having correlation does not imply any causation.
In other words, the existence of a relationship between variables does not
prove causality or the direction of influence. However, in time series data, the
situation may be different as Gary Koop1 said. ‘…time does not run backward.
That is, if event A happens before event B, then it is possible that A is causing
B. However, it is not possible that B is causing A. In other words, events in the
past can cause events to happen today. Future events cannot.’ In 1969, C.W.J.
Granger developed the causality test which is popularly known as the Granger
Causality Test.
Stocks listed in two countries represent the same company. According to law of
one price, the same goods selling in different areas should have the same
prices; otherwise, arbitrage will take place. Under the regulations in both areas,
Hong Kong investors cannot invest in China stock markets and Chinese
investors cannot invest in Hong Kong. In other words, the market is completely
segmented. Although the market is segmented, because the stocks are
representing the same company, they should have interaction. Furthermore,
they are time series data. Causality is possible to exist. The objective of my
1 Damodar N. Gujarati, 2003, ‘Basic Econometrics, 4th edition’. Mcgraw-Hill, 696
7
study is to examine the returns causality of the two areas stocks.
1.3 Relationship between H-Shares and A-Shares
Since both H-Shares and A-Shares represent the same company, their
relationship can be explained by Law of One Price:
ePP AH = (i)
HP is the price of H-Shares in Hong Kong, it is denominated in Hong Kong
Dollar. AP is the price of A-Shares in China which is denominated in China
Yuan. e is the exchange rate of Hong Kong Dollar to China Yuan. According to
Law of One Price, HP should be equal to AP e otherwise arbitrage will take
place.

=
(ii)
tR is rate of return and P is price. The total return of H-shares is defined as:
A t
e t
H t
t A
−−− 111
lnln
(iii)
According to equation (iii), the return of H-Shares can be divided into two parts:
return of A-shares and return of exchange rate.
8
Since H and A shares represent the same company, the return should be the
same in the long run. However, in the short run, it can be affected by the
fluctuation of exchange rate.
9
2. Literature Review
In the global financial market, there are increasing numbers of companies list
their stocks in more than one country. As a result, ‘dual listing’ becomes a
concern in finance. The researches in dual listing can be mainly divided into
two aspects. They are (1) how effective is dual listing (2) relationship of dually
listed stocks across different markets.
2.1 effectiveness of dual listing
Ackerly II and Pan (2002) stated that a dually listed company can enjoy greater
liquidity, better pricing and higher visibility for its stocks. Beauregard and Prat
(2000) studied the effects of dual listing on Latin American Markets. They
mentioned that the cost of capital of dually listed company can be lowered.
Some researchers studied the returns behaviors of pre-dual listing and
post-dual listing. Baker, Khan and Edelman (1994) applied event study
methodology to examine the post-dual listing returns behaviors of 87 stocks
listed in both American Stock Exchange and New York Stock Exchange and
found that there was a significant negative abnormal return after dual listing.
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2.2 Relationship of dually listed stocks
Groenewold, Tang and Wu (2001) studied the dynamic interrelationships
between the China, Hong Kong and Taiwan markets by Granger Causality
Test. They pointed out that after the Asian financial crisis in 1997, Hong Kong
has formed a Granger Cause to China stock market while China was quite
isolated before. In other foreign markets, Sanjay K. Hansda, Partha Ray (2002)
applied the vector autoregressive model (VAR) to study the causal relationship
of 10 Indian ADR listed in New York Stock Exchange and its underlying stocks
listed in India stock exchange. The result showed that they are mutually
caused to each other. Shen-Yuan Chen, Li-Chuan Chou, Chau-Chen Yang
(2002) also employed the Granger Causality Test and Error Correction Model
(ECM) to examine the price transmission effect betweens ADRS and Global
Depository Receipts (GDR) and their respective underlying stocks listed in
Taiwan. The result revealed that there is a unidirectional causality from
Taiwan’s capital market to foreign markets. Zhu, Lu and Wang (2004) used the
model of vector cointegration and error correction model to test for causal
relationship between China's stock markets and the Hong Kong’s market.
They concluded that Shenzhen Granger caused Shanghai before 1994. For
the volatility, they found that a positive feedback relationship between
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Shanghai and Shenzhen stock markets, and that Hong Kong volatility Granger
causes Shanghai volatility, but not vice versa. Apart from price transmission,
volatility transmission is also another prevailing research area. GARCH model
is usually applied in this case. Wen-Ling Lin, Robert F. Engle, Takatoshi Ito
(1992) employed the generalized autoregressive conditional
heteroskedasticity (GARCH) model to investigate how returns and volatilities
correlated between Tokyo and New York stock indices. The result revealed
there are no significant lagged spillovers in returns and volatilities between
Tokyo and New York.
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3. Data
Daily closing prices of 29 stocks in China and Hong Kong are collected in
Datastream in HKBU. They are all dividend adjusted. The sample period is
from 1994 to 2005 (each stock has different sample period, see Table 1a).
Returns are calculated by using the daily closing prices of the stocks with
continuous compounding. Prices of stocks listed in Hong Kong are
denominated in Hong Kong Dollar while stocks in China are China Yuan. An
exchange rate of Hong Kong Dollar to Chinese Yuan from 1994 to 2005 was
collected too. Trading volume is also collected for supplement.
[Appendix 9.1]
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4. Methodology
4.1 Autoregressive model and Granger Causality Test
The autoregressive model (AR) and Granger Causality Test are carried out to
examine the causality of the dually listed stocks in Hong Kong and China. If
there is one time series variable - ‘Y’, AR can be used to explain the
relationship between the past value and current value of Y. The equation of
AR is defined as:
εβββα (1)
Equation (1) shows the relationship between the past value and current value
of Y. According to equation (1), if we know the past value of Y, we can predict
the current value of Y. According to Granger, if there are two variables, X and
Y, we claim that X cause Y when the past value of X is more predictable to the
current value of Y than using past value of Y alone. In other words, if we add
the past value to of X into equation (1) and the result turns out to be more
accurate, and then we can conclude X Granger Causes Y. The equation is as
follow:
tjt
m
11
(2)
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Equation (1) is actually a restricted model and equation (2) is an unrestricted
model. In order to test whether X cause Y, Joint test of significance should be
carried out. We need to calculate the F* value. The F* value can be computed
as the following:
− =* (3)
If the F* value exceed the critical F value at the chosen level of significance,
the null hypothesis can be rejected. We can conclude that X cause Y. In this
paper, I will test on 5% level of significance.
The first model I used is the fixed lag length model. The lags for the two
variables system are the same. It is defined as:
iit
n
[Appendix 9.9]
Since lag length means the speed of influencing so that it is very important in
Granger Causality. Equation (4) and (5) assume the lag lengths are fixed. It
may not show the speed of information flow accurately. Therefore, I find the
optimal lag length by the using the Schwarz Information Criterion. I determined
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the lag length in equation (1). It was done by using the past value of Y to
predict the current value of Y. I tested the accumulated lag length from 1 to 10.
The smallest value of SIC is preferred. Maximum 10 days of lag length is
selected because it involves 2 weeks in stock market. Information flow in
financial market is quick. Any significant relationship is supposed to be
reflected within two weeks. After determining the lag length for equation (1), I
used the same method to decide the lag length in equation (2). After working
on Y, then I worked on X as the two variables can be mutually caused. A two
variables system can be developed:
ijt
m
(6)
(7)
There is one important assumption for using joint test of significance. Joint Test
of Significance is a kind of Ordinary Least Square (OLS) estimation. Under
OLS estimation, the error is assumed to follow the normal distribution. If the
samples size is not large enough, sometimes the estimators yielded may not
be efficient. I apply the Maximum-Likelihood (ML) Estimation to solve this
problem. The ML model is defined as:
( ) == ∑ β,, ii XYfL (8)
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( )( )∑ −
−

−

2 112 2
Afterward, the Likelihood Ratio (LR) Test can be implemented. The LR Test is
defined as:
( ) ( )[ ]URR LL ββλ −−= 2 (9)
( RL )β is the log-likelihood value of the restricted model which is equation (1).
( URL )β is the log-likelihood value of the unrestricted model which is equation
(2). The ML estimation follows the distribution, so we need to compare the
value given by equation (9) with the critical value. If the value computed
exceeds the critical value at a specific level of significance, we can reject the
null hypothesis.
4.2 Stationarity Test
When using the Granger Causality Test, there is one assumption: the variable
has to be stationary. That means the mean and variance are constant over
time and the value of the covariance between two time periods depends only
on the lag length but not the actual time that the covariance is computed.
Therefore, stationarity test has to be done before working for causality test.
One of the popular stationarity tests is known as Augmented Dickey-Fuller
(ADF) test:
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∑ =
1 121 εαδββ (10)
Where ρ= δ -1. The null and alternative hypothesis is: H0: ρ=0 that is, a unit root exists H1: 0 < ρ
ADF test is a unit root test. When the model possesses a unit root, the data is
said to be non-stationary. If the data is non-stationary, transformation process
has to be carried out.
Two models will be used in ADF test, (1) with trend and intercept and (2) no
trend and no intercept. The lag length will be 5 days and 10 days. In stock
market, 5 days represent a week and 10 days represents 2 weeks. It is
believed that within 10 days the effect of autocorrelation can be reflected
completely. If the calculated ADF value exceeds the critical value, the null
hypothesis can be rejected. We claim that it does not have a unit root --- the
data is stationary.
4.3 Information Criteria Test
Another critical issue in Granger Causality Test is to determine the optimal lag
length. Criterion tests can be implemented to find the lag length. Akaike
Information Criteria (AIC) Test can be adopted. AIC imposes a harsher penalty
18
than adjusted R2 for adding more regressors. The lower the AIC value, the

+

=
n kAIC ln2ln (11)
‘k’ is the number of regressors and ‘n’ is the numbers of observations. ( )n k2 is
the penalty factor. However, the lag length given by AIC is quite large,
sometimes with more than 5 days lag. The information flowing process in
financial market is usually very quick so that a smaller lag is preferred.
Therefore, I apply the other criteria test to minimize the lag selected. I employ

+=
n kSIC lnlnln (12)
( )[ ]nn k ln is the penalty factor. It imposes a harsher penalty not only than
adjusted R2 but also the AIC. The lag length picked up by AIC will be smaller.
The decision rule is same as AIC. The smaller SIC value is prefer.
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5. Empirical Results
5.1 Descriptive analysis
Prices
The prices of 29 stocks try to converge in the recent 5 years. The prices of
H-shares are increasing and the prices of A-Shares are decreasing. This trend
exists because of the expansion of H-Shares and the rapid drop in A-Shares
market from 2001. The increasing importance of international finance is also
attributed to the converging of prices.
Mean of return
There are 25 stocks listed in Hong Kong having a higher mean than China. As
for the five stocks listed in China having a higher return, they are Jiaoda Kunji
High-Tech Co Ltd, Guangzhou Shipyard International Co Ltd, Maanshan Iron
and Steel Co Ltd, Guangdong Kelon Electrical Holdings Co Ltd and Sinopec
Yizheng Chemical Fibre Co Ltd. Some stocks enjoyed the rising trend of China
stock market from 1994 to 1996, however, most stocks are dually listed only
after 1997. Although there was a rising trend from 1997 to 2000, however, it
was outweighed by the sharply drop in 2001. As a result, the mean of most
stocks listed in China are lower. The Shanghai and Shenzhen A-Shares
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plummeted quickly in last 5 years (Table 5.1a and 5.1b). They dropped for
more than 44% and 57.14% respectively. Investors are lacking of confidence
to trade in China recently. In contrast, the H-Shares index in Hong Kong rised
for more than 400% in last 5 years from 1200 to 5000 points (Table 5.1c). This
leads to a higher mean of returns of H-Shares listed in Hong Kong.
[Appendix 9.2, 9.10]
Volatility
However, the standard deviation for Hong Kong is higher. All the 29 stocks
listed in Hong Kong have a higher standard deviation than China. The
standard deviation of returns in Hong Kong is around 2%-4% while it is only
1.6%-3% in China. This can be explained by the rapid expansion of H-Shares
in Hong Kong. Both the prices and trading volume of H-shares in Hong Kong
increase quickly. We also know that the higher the return, the higher the risk
will be. Therefore, the stocks in Hong Kong are more volatile. On top of that,
the SSE and SZE adopted the daily price limited policy from 1996. The daily
movement of stock price cannot exceed 10% otherwise it will be stopped for
trading. Hong Kong does not have such policy. This also contributes to the
lower volatility of return in China.
[Appendix 9.2]
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Trading volume
The average trading volume of H-Shares is higher than A-Shares. 23
H-Shares have a higher average trading volume. 2 shares are having the
similar amount of average trading volume. Only 3 A-Shares have a higher
average trading volume2. The result is satisfactory as the stock market in Hong
Kong is well established but the ones in China are emerging markets. As a
result, the trading volume in China should be lower.
[Appendix 9.5]
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Table 5.1a – Summary of Descriptive Statistics
Hong Kong China
HK Code
Mean Standard
Deviation 0168 2804 0.000124 0.036595 -0.000263 0.028923 0177 1057 0.000895 0.024024 -0.000155 0.018099 0187 2780 0.000124 0.036595 -0.000263 0.028923 0300 2804 -0.000527 0.044713 -0.000225 0.036526 0317 2780 -0.000220 0.041558 -0.000327 0.032451 0323 2780 -0.000138 0.039657 -1.39E-05 0.028413 0338 2780 6.61E-05 0.037254 -0.000177 0.028774 0358 799 0.001660 0.032961 0.000178 0.020971 0386 911 0.000987 0.022615 5.05E-06 0.016423 0548 812 0.000554 0.019871 -0.00 3190 0.018961 0553 2143 2.99E-05 0.049766 -0.00 5290 0.026664 0670 1891 -0.000144 0.037029 -0.00 4250 0.020661 0874 1028 0.000693 0.028615 -0.00 1211 0.019561 0902 820 0.001130 0.022559 0.000111 0.018366 0914 780 0.001550 0.032324 0.000104 0.019706 0995 541 0.001522 0.022653 0.000969 0.019170 1033 2562 -0.000249 0.040990 2.43E-06 0.029239 1055 399 0.000301 0.028198 -0.00 1800 0.021293 1065 2504 0.000395 0.044332 5.36E-05 0.026914 1072 2414 0.000444 0.043854 -7.63E-05 0.027650 1108 2416 -0.000391 0.044052 -0.00 5250 0.027236 1138 705 0.001997 0.029931 0.001215 0.021757 1171 1721 0.001117 0.037521 0.000282 0.020994
Listed in SZE and HKSE
0042 1198 -0.000301 0.052301 -0.000432 0.032491 0347 1853 0.000731 0.042028 7.76E-06 0.020260 0350 2127 0.000211 0.043280 -0.00 7770 0.026707 0368 2058 0.000298 0.046643 -0.00 1000 0.029222 0719 1954 -0.000418 0.035844 -0.00 5740 0.023659 0921 1388 -0.001207 0.038936 -0.00 1191 0.018871
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5.2 Correlation Analysis
Owing to the regulations in China, investors in Hong Kong cannot trade in
China (except B-Shares market). The local market is only for domestic
investors in China. Therefore, the two markets are completely segregated.
Although there is correlation between the two, the result is not so significant.
The number is ranged from 0.043 to 0.209. It shows that the correlation is not
very strong. The result table can be found in appendix 9.3.
[Appendix 9.3]
5.3 Stationarity Test
The daily returns are supposed to have no trend and intercept. All the data with
level difference have a very great ADF value, they passed the ADF test under
the lag length of 5 days and 10 days, even with trend and intercept. We can
conclude that they are all stationary. Therefore, the data can be incorporated
directly into equation (1) and (2) without any transformation.
[Appendix 9.6]
5.4 Granger Causality Test
The result of OLS and ML is nearly the same. Only one stock (0995) has a
reversed result. The summary of the Granger Causality Test is shown in Table
5.4a. There are totally 29 stocks. 23 are from Shanghai Exchange while 6 are
24
from Shenzhen Exchange. The result shows that 13 stocks in Hong Kong
Granger Cause China. 4 stocks in China are Granger Cause Hong Kong. 3 of
them are mutually Granger Cause and 9 of them are independent. The
information flow usually finishes within 1 day lag. The test was carried out at
5% of significance.
Table 5.4a – Summary of Granger Csausality
Granger Causality Result at 5% level of significance Numbers of stocks
HK Granger Cause China 13
China Granger Cause HK 4
Mutually Granger Cause 3
Total 29
[Table 5.4d]
Different characteristics of stock market
The result shows that the direction of influence is most likely from ‘Hong Kong
to China’. The result is normal as the stock market in Hong Kong is well
established. However, the stock market in Shanghai was found in 1990 and
Shenzhen was in 1991. They are emerging market. The total market value of
the Hong Kong Stock Exchange is greater than the two exchanges in China.
The total market value of stocks in Hong Kong at the end of 2004 is worth 6600
billions Hong Kong dollars. The value in China is around 4000 billions Chinese
Yuan only (SSE plus SZE). Whatever the regulations, investing atmosphere
25
and quality of companies in China Stock Exchange are worse than the one in
Hong Kong. Chinese managers usually do not recognize the importance of
disclosure. Further, share manipulation and insider trading are considered to
be rampant and investor protections are insufficient in China. In turn, capital
can be easily lured from China to Hong Kong as investors are always looking
for a better investing environment. Although the markets are segregated, the
investors in China may pour their money to Hong Kong in some special ways if
they find there is a better environment for trading. Therefore, Hong Kong has a
greater force to Granger Cause China.
Legal Restrictions of stock market
The other reason for Hong Kong Granger Cause China is the regulations in
both areas. In Hong Kong, there is no restriction for foreign investors to invest
in domestic stock market. However, in China, foreign investors can only trade
in B-Shares market. It is known as an illiquid market. In consequence, Hong
Kong tends to have more rational investors, particularly international
institutional investors. The prices of stock should be priced more correctly
comparing with China. This can form a leading position to China. People may
try to base on Hong Kong market performance to predict China. There are also
26
9 stocks independent to each other. It is attributed to the segregated markets
which is the outcome of different regulations.
Industry
I tried to group the companies into different types of industry. They are shipping,
resources, energy, pharmacy, petrochemical, industrial mechanism,
transportation and other.
In industrial mechanism industry, 4 out of 6 stocks Granger Cause to China. 5
of them are listed in SSE. There are nearly 100 industrial mechanism stocks
listed in SSE, however, the numbers in Hong Kong are limited to not more than
20 only. Therefore, the choices in Hong Kong are fewer. If investors in Hong
Kong want to invest in industrial mechanism industry, they are reluctant to
these stocks. As for the energy industry, there are only two stocks. Hong Kong
shows the influence to China. Also, the choices of energy stocks in Hong Kong
are fewer than in China. I believe that the more unique status of the share in
one area, it plays a more important role in return transmission.
Some industries are quite independent. They are petrochemical industry,
27
transportation industry and pharmacy industry. For petrochemical industry, all 2
out of three shares are independent. The transportation industry is also quite
independent in both areas. 3 out of 5 shares show an independent relationship.
Especially for expressway companies, 2 of them are independent. There are
two stocks in pharmacy industry. They are also independent to each other. The
remaining industries do not show a definite conclusion.
Trading volume
I calculated the average trade volume of the H-Shares and A-Shares. There
are 22 H-Shares having a higher average turnover than China. 12 of these
stocks show influence to A-Shares while 2 are having feedback from A-Shares.
As for the China market, there are 4 A-Shares having higher average trading
volume, only 1 of them show influence to Hong Kong. 2 shares have similar
amount of average trading volume and one of them are mutually Granger
Cause to each other.
Initial listing area
The 11 stocks which are Hong Kong Granger Cause China have one common
characteristic - their first listing area is in Hong Kong. However, there are only
28
two stocks listed in China exchange first and one is Granger Cause to Hong
Kong. Therefore, the listing area is related to the Granger Causality. I.e. if the
stocks list in Hong Kong first, then it will be Granger Cause China. On the
contrary, if it is listed in China first, it will be Granger Cause Hong Kong.
Preconceived idea of investors is the main reason for this phenomenon. When
investors start to spend effort in investing one stocks, they will most likely to
stick to it.
Causality without returns on exchange rate
The result shown above had taken the returns on exchange rate of Hong Kong
Dollars to Chinese Yuan into consideration. In order to see whether returns on
exchange have impact on causality, I examined another set of test which did
not include the returns on exchange rate. The result shows nearly no
difference from the test that includes the returns of exchange rate. Only one
stock (0042) turns from ‘independent’ to ‘China Granger Cause HK’. The
exchange rate of Hong Kong Dollar to Chinese Yuan is a cross rate. Both the
Hong Kong Dollar and Chinese Yuan peg with the US Dollar. Although the
Chinese Yuan appreciates from in 1994, it tended to keep constant after 10
years. The Hong Kong Dollar also keep pace with the US Dollar. Therefore,
29
from 1994 to 2005, the exchange rate of Hong Kong Dollar to China Yuan is
quite stable so that the two tests yield the same result.
[Appendix 9.11]
Table 5.4b – Exchange rate of Hong Kong Dollar to Chinese Yuan (cross rate)
Exchange rate of Hong Kong Dollar to Chinese Yuan
0.84
0.86
0.88
0.9
0.92
0.94
0.96
1-Jan-94
1-Jan-95
1-Jan-96
1-Jan-97
1-Jan-98
1-Jan-99
1-Jan-00
1-Jan-01
1-Jan-02
1-Jan-03
1-Jan-04
1-Jan-05
Table 5.4c – Exchange rate of Hong Kong Dollar and Chinese Yuan to US Dollar
Exhcnage rate of Hong Kong Dollar and Chinese Yuan
7.6
7.8
8
8.2
8.4
8.6
8.8
1-Jan-94
1-Jan-95
1-Jan-96
1-Jan-97
1-Jan-98
1-Jan-99
1-Jan-00
1-Jan-01
1-Jan-02
1-Jan-03
1-Jan-04
1-Jan-05
HKD-USD
CNY-USD
30
Table 5.4d - Summary of Granger Causality Test at 5% level of significance
in Hong Kong and Shanghai Causality Mkt Cap
China Petroleum and Chemical Corp # HK → China 53278
Huaneng Power International Inc # HK → China 17874 Yanzhou Coal Mining Co Ltd # HK ← China 13403
China Shipping Development Co Ltd # HK → China 8748 Sinopec Shanghai Petrochemical Co Ltd # HK China 7456
Jiangxi Copper Co Ltd # HK → China 4886 Maanshan Iron and Steel Co Ltd # HK ← China 4766
Jiangsu Expressway Co Ltd # HK China 4338 Tsingtao Brewery Co Ltd # HK → China 3357
Anhui Conch Cement Co Ltd # HK → China 3292 China Southern Airlines Company Ltd # HK China 2994 Anhui Expressway Co Ltd HK → China 2256 China Eastern Airlines Corporation Ltd # HK ← China 2178
Shenzhen Expressway Co Ltd # HK China 2130 Sinopec Yizheng Chemical Fibre Co Ltd # HK → China 2044 Dongfang Electrical Machinery Co Ltd HK → China 1224 Tianjin Capital Environmental Protection Co Ltd HK → China 935 Guangzhou Pharmaceutical Co Ltd HK China 440 Guangzhou Shipyard International Co Ltd HK←→China 354 Nanjing Panda Electronics Co Ltd HK←→China 305 Luoyang Glass Co Ltd HK China 255 Beiren Printing Machinery Holdings Ltd HK → China 250 Jiaoda Kunji High-Tech Co Ltd HK ← China 79 in Hong Kong and Shenzhen Causality Mkt Cap Angang Newsteel Co Ltd # HK←→China 4161 Jilin Chemical Industrial Co Ltd HK China 2219 Guangdong Kelon Electrical Holdings Co Ltd HK → China 823 Jingwei Textile Machinery Co Ltd HK → China 356 Shandong Xinhua Pharmaceutical Co Ltd HK China 179 Northeast Electric Development Co Ltd HK China 173 →: Granger Cause ←→: Mutually Granger Cause : Independent
31
6. Conclusion
The Granger Causality Test in this paper shows that most of the dually listed
stocks in Hong Kong Granger Cause the stocks in China. The result shows
that 13 stocks in Hong Kong Granger Cause China. 4 stocks in China are
Granger Cause Hong Kong. 3 of them are mutually caused and 9 of them are
independent to each other. In general, Hong Kong H-Shares play a more
important role in mean transmission to China A-Shares. The reasons are
fivefold: (1) emerging characteristics of the China stock market, (2) legal
restrictions on stock markets, (3) industry preferences, (4) initial listing area
and (5) different size of trading volume. The speed of information transmission
is also effective as it is usually finished in one day. My finding is quite similar as
the result of Nicolaas, Tang and Wu (2002) who studied the interrelationships
between the Greater China Share Market. They pointed out that Hong Kong
formed a Granger causal relation to China stock market after 1997 while China
was quite independent before. However, the difference is I did not divide the
testing period into two periods, i.e. before 1997 and after 1997.
Hunter (1993) claimed that emerging market is more easily to be influenced by
developed market because emerging market is less efficient. Also,
32
Groenewold, Wu and Tang (2001) showed the Shanghai Stock market is in
weak form efficiency and Shenzhen is semi-strong form of efficiency. My
finding agrees with Hunter’s study that China is an emerging market and Hong
Kong is a developed market. As a result, a developed market causes an
emerging market. The reasons are those I mentioned in part 5.4.
The return of foreign exchange does not affect the causal relation between
H-Shares and A-Shares. It was due to the stability of Chinese Yuan and Hong
Kong Dollar in the last decade. Nevertheless, Chinese Yuan is going to
revaluation currently and capital will be more likely attracted to Chinese Yuan
denominated financial assets at that moment. Nowadays, China stock market
ranks the third largest in Asia, it is just behind Japan and Hong Kong.
According to the research of Morgan Stanley in 20013, the China stock market
can grow to 11000 billions in 2010. At that moment, the causality relationship
may be reversed. Another possible situation is that companies in Hong Kong
may dually list their stock in China.
3 People’s Daily Online 15th September, 2001 (http://www.people.com.cn/BIG5/paper39/4239/489999.html)
33
7. Limitations
There are only 29 dually listed shares in Hong Kong Stock Exchange and
Shenzhen and Shanghai Stock Exchange. The sample size may not be great
enough.
Owing to the lacking information of dividends, stock options, placement, etc,
the daily closing prices cannot be adjusted.
Granger Causality test cannot always proof of causality, it is confirmation of the
direction of influence. It does not address the issues of causal closure.
34
8. References
Baker, H Kent , Khan, Walayet A, Edelman, Richard B, 1994, ‘The post-Dual Listing Anomaly’, Journal of Economics and Business.
Billy Mak. S.C., Joseph Fung. K.W. 1994, ‘AB’, Hong
Kong Baptist University. Damodar N. Gujarati, 2003, ‘Basic Econometrics, 4th edition’. Mcgraw-Hill, 537-538, 696-700, 817-818. Dana T. Ackerly II,Eric J. Pan, 2002, ‘Dual-Listing Securities in Europe and the
United States’, Covington & Burling.
Delroy M. Hunter, 2000, ‘Linear and Nonlinear Dynamic Linkages between Emerging Market ADRs and their Underlying Stocks’, College of Business Administration
Groenewold, Nicolaas, Tang and Wu, 2001, ‘The Dynamic Interrelationships between the Greater China Share Market’, EconPapers.
Groenewold, Nicolaas, Tang and Wu, 2001, ‘An Exploration of the Efficiency of
the Chinese Stock Market’, EconPapers Hongquan Zhu, Zudi Lu, Shouyang Wang, Abdol S Soofi, 2004, ‘Causal
Linkages among Shanghai, Shenzhen, and Hong Kong Stock Markets’, International Journal of Theoretical & Applied Finance
Michael Beauregard, Jordi Prat, 2000, ‘The Effects of Dual-Listing on Latin
American Markets’, LACEA. Ngai Man Yin, 2004, ‘Information Flows and Volatility Linkage across Markets:
Evidence from Dually Listed China-Backed Stocks’, Hong Kong Baptist University.
Richard Podpiera, 2001, ‘International Cross Listing: The Effects of Market
Fragmentationand Information Flows’. Roberto Pascual, Bartolomé Pascual-Fuste and Francisco Climent, 2001,
35
‘Cross-listing, Price Discovery and the Informativeness of the Trading Process’, EconPapers.
S. Pindyck, Daniel L. Rubinfeld, 1991, ‘Economics Models & Economic Forecasts’, Mcgraw-Hill, 238-240.
Sanjay K. Hansda, Partha Ray, 2002, ‘Stock Market Integration and Dually
Listed Stocks :Indian ADR and Domestic Stock Prices’. CBNU University Wen-Ling Lin, Robert F. Engle, Takatoshi Ito, 1992, ‘Do Bulls and Bears Move
Acoross Borders: International Transimission of Stock Returns and Volatility as the World Turns,. Institute of Economic Research Hitotsubashi University.
, , 1999, ‘’.

36
9. Appendix 9.1 List of dually listed stocks in China and Hong Kong (total: 29)
in Hong Kong and Shanghai Weighting Mkt Cap Observations Code of HKSE Code of SSE
China Petroleum and Chemical Corp # 13.4% 53278 961 386 600028 Huaneng Power International Inc # 4.1% 17874 870 902 600011 Yanzhou Coal Mining Co Ltd # 3.3% 13403 1771 1171 600188 China Shipping Development Co Ltd # 2.2% 8748 755 1138 600026 Sinopec Shanghai Petrochemical Co Ltd # 1.8% 7456 2983 338 600688 Jiangxi Copper Co Ltd # 1.2% 4886 849 358 600362 Maanshan Iron and Steel Co Ltd # 1.2% 4766 2940 323 600808 Jiangsu Expressway Co Ltd # 1% 4338 1107 177 600377 Tsingtao Brewery Co Ltd # 0.8% 3357 3034 168 600600 Anhui Conch Cement Co Ltd # 0.8% 3292 818 914 600585 China Southern Airlines Company Ltd # 0.8% 2994 443 1055 600029 Anhui Expressway Co Ltd N/A 2256 592 995 600012 China Eastern Airlines Corporation Ltd # 0.5% 2178 1941 670 600115 Shenzhen Expressway Co Ltd # 0.5% 2130 862 548 600548 Sinopec Yizheng Chemical Fibre Co Ltd # 0.5% 2044 2612 1033 600871 Dongfang Electrical Machinery Co Ltd N/A 1224 2476 1072 600875 Tianjin Capital Environmental Protection Co Ltd N/A 935 2554 1065 600874 Guangzhou Pharmaceutical Co Ltd N/A 440 1092 874 600332 Guangzhou Shipyard International Co Ltd N/A 354 2990 317 600685 Nanjing Panda Electronics Co Ltd N/A 305 2193 553 600775 Luoyang Glass Co Ltd N/A 255 2466 1108 600876 Beiren Printing Machinery Holdings Ltd N/A 250 2854 187 600860 Jiaoda Kunji High-Tech Co Ltd N/A 79 2943 300 600806 in Hong Kong and Shenzhen Weighting Value Observations Code of HKSE Code of SSE
Angang Newsteel Co Ltd # 1% 4161 1904 347 898 Jilin Chemical Industrial Co Ltd N/A 2219 2217 368 618 Guangdong Kelon Electrical Holdings Co Ltd N/A 823 1502 921 921 Jingwei Textile Machinery Co Ltd N/A 356 2177 350 666 Shandong Xinhua Pharmaceutical Co Ltd N/A 179 2004 719 756 Northeast Electric Development Co Ltd N/A 173 2306 42 585
Weighting is the constituent weighting of H-Shares Index at 28 February, 2005
37
9.2 Descriptive Statistics
Mean Standard
Deviation 0168 3034 0.000124 0.036595 -0.000263 0.028923 0177 1107 0.000895 0.024024 -0.000155 0.018099 0187 2854 0.000124 0.036595 -0.000263 0.028923 0300 2943 -0.000527 0.044713 -0.000225 0.036526 0317 2990 -0.000220 0.041558 -0.000327 0.032451 0323 2940 -0.000138 0.039657 -1.39E-05 0.028413 0338 2983 6.61E-05 0.037254 -0.000177 0.028774 0358 849 0.001660 0.032961 0.000178 0.020971 0386 961 0.000987 0.022615 5.05E-06 0.016423 0548 862 0.000554 0.019871 -0.00 3190 0.018961 0553 2193 2.99E-05 0.049766 -0.00 5290 0.026664 0670 1941 -0.000144 0.037029 -0.00 4250 0.020661 0874 1092 0.000693 0.028615 -0.00 1211 0.019561 0902 870 0.001130 0.022559 0.000111 0.018366 0914 818 0.001550 0.032324 0.000104 0.019706 0995 592 0.001522 0.022653 0.000969 0.019170 1033 2612 -0.000249 0.040990 2.43E-06 0.029239 1055 443 0.000301 0.028198 -0.00 1800 0.021293 1065 2554 0.000395 0.044332 5.36E-05 0.026914 1072 2476 0.000444 0.043854 -7.63E-05 0.027650 1108 2466 -0.000391 0.044052 -0.00 5250 0.027236 1138 755 0.001997 0.029931 0.001215 0.021757 1171 1771 0.001117 0.037521 0.000282 0.020994 0042 2306 -0.000301 0.052301 -0.000432 0.032491 0347 1904 0.000731 0.042028 7.76E-06 0.020260 0350 2177 0.000211 0.043280 -0.00 7770 0.026707 0368 2217 0.000298 0.046643 -0.00 1000 0.029222 0719 2004 -0.000418 0.035844 -0.00 5740 0.023659 0921 1502 -0.001207 0.038936 -0.00 1191 0.018871
38
9.3 Correlation Analysis
39
9.4 Average prices comparison between H-Shares and A-Shares
Stocks HK China Discount of HK
0042 0.81 5.27 0.84
0168 3.52 7.70 0.54
0177 2.63 8.55 0.69
0187 1.67 6.47 0.74
0300 1.42 6.54 0.78
0317 1.52 4.84 0.68
0323 1.30 3.08 0.57
0338 1.75 3.84 0.54
0347 1.54 3.90 0.60
0350 1.40 7.44 0.81
0358 2.44 5.50 0.55
0368 0.94 5.16 0.81
0386 2.06 3.74 0.44
0548 0.46 1.20 0.61
0553 1.68 10.27 0.83
0670 1.08 4.43 0.75
0719 1.40 9.65 0.85
0874 1.91 8.91 0.78
0902 4.75 7.08 0.32
0914 6.18 8.73 0.29
0921 2.63 10.69 0.75
0995 2.91 5.34 0.45
1033 1.55 4.67 0.66
1055 3.02 4.75 0.36
1065 1.24 6.11 0.79
1072 1.64 7.57 0.78
1108 1.00 6.11 0.83
1138 4.08 7.02 0.41
1171 3.94 9.26 0.57
The prices are calculated by taking average of the prices. The sample period from the initial listing day to 14 April,
2005
40
9.5 Average trading volume
41
9.6 Unit Root Test (Augmented Dickey-Fuller Test)
∑ =
i tititt YYtY
1 121 εαδββ
In HK 5 days lag 10 days lag IN China 5 days lag 10 days lag
HK Code Trend &
42 -19.66 -19.66 -14.65 -14.65 42 -20.09 -20.02 -14.87 -14.78
168 -22.26 -22.22 -17.36 -17.30 168 -23.77 -23.72 -17.99 -17.94
177 -14.60 -14.50 -11.46 -11.30 177 -15.58 -15.47 -10.73 -10.59
187 -22.36 -22.33 -15.59 -15.55 187 -22.70 -22.70 -17.63 -17.63
300 -24.06 -24.02 -16.37 -16.32 300 -22.50 -22.50 -17.02 -17.02
317 -22.59 -22.55 -16.36 -16.31 317 -21.34 -21.33 -17.57 -17.57
323 -22.24 -22.16 -16.04 -15.93 323 -21.56 -21.57 -17.29 -17.29
338 -23.27 -23.25 -17.61 -17.58 338 -21.62 -21.61 -16.88 -16.86
347 -17.03 -16.99 -13.52 -13.49 347 -18.18 -18.17 -12.30 -12.29
350 -20.09 -20.09 -14.12 -14.12 350 -19.68 -19.65 -16.46 -16.43
358 -12.02 -11.93 -8.65 -8.55 358 -12.71 -12.67 -8.22 -8.17
368 -19.67 -19.64 -14.53 -14.49 368 -19.96 -19.91 -15.70 -15.64
386 -14.28 -14.19 -11.23 -11.07 386 -13.68 -13.68 -9.26 -9.26
548 -12.37 -12.35 -10.11 -10.06 548 -13.29 -13.20 -9.25 -9.12
553 -20.40 -20.41 -13.66 -13.67 553 -19.69 -19.63 -15.63 -15.55
670 -18.23 -18.22 -14.31 -14.29 670 -19.00 -18.99 -13.30 -13.28
719 -17.72 -17.68 -12.91 -12.86 719 -18.75 -18.60 -14.67 -14.46
874 -13.55 -13.47 -9.67 -9.61 874 -13.64 -13.49 -10.15 -9.95
902 -12.97 -12.81 -10.13 -9.85 902 -13.01 -13.01 -8.65 -8.63
914 -12.44 -12.35 -9.14 -8.99 914 -10.49 -10.40 -7.70 -7.60
921 -11.33 -11.14 -8.98 -8.66 921 -11.77 -11.65 -7.95 -7.78
995 -11.33 -11.14 -8.98 -8.66 995 -11.77 -11.65 -7.95 -7.78
1033 -19.48 -19.48 -14.87 -14.87 1033 -21.10 -21.08 -17.02 -16.98
1055 -9.31 -9.25 -6.86 -6.75 1055 -9.29 -9.09 -6.02 -5.77
1065 -20.36 -20.34 -14.87 -14.85 1065 -21.02 -21.03 -16.51 -16.52
1072 -19.94 -19.84 -14.12 -14.00 1072 -19.99 -19.94 -15.84 -15.78
1108 -20.35 -20.33 -14.91 -14.89 1108 -19.50 -19.49 -15.55 -15.53
1138 -12.91 -12.71 -9.36 -9.07 1138 -10.63 -10.54 -8.33 -8.22
1171 -18.31 -18.25 -13.73 -13.62 1171 -17.36 -17.36 -12.81 -12.80
5% level of significance with trend and intercept: -3.41 5% level of significance without trend and intercept: -1.94
42
9.7a Granger Causality Summary 1
Stocks Causality
China Petroleum and Chemical Corp # HK → China Huaneng Power International Inc # HK → China Yanzhou Coal Mining Co Ltd # HK ← China
China Shipping Development Co Ltd # HK → China Sinopec Shanghai Petrochemical Co Ltd # HK China
Jiangxi Copper Co Ltd # HK → China Maanshan Iron and Steel Co Ltd # HK ← China
Jiangsu Expressway Co Ltd # HK China
Tsingtao Brewery Co Ltd # HK → China Anhui Conch Cement Co Ltd # HK →China
China Southern Airlines Company Ltd # HK China
Anhui Expressway Co Ltd HK ← China
China Eastern Airlines Corporation Ltd # HK ←China
Shenzhen Expressway Co Ltd # HK China
Sinopec Yizheng Chemical Fibre Co Ltd # HK → China Dongfang Electrical Machinery Co Ltd HK → China Tianjin Capital Environmental Protection Co Ltd HK → China Guangzhou Pharmaceutical Co Ltd HK China
Guangzhou Shipyard International Co Ltd HK ←→China
Nanjing Panda Electronics Co Ltd HK ←→China
Luoyang Glass Co Ltd HK China
Beiren Printing Machinery Holdings Ltd HK → China Jiaoda Kunji High-Tech Co Ltd HK ← China
in Hong Kong and Shenzhen Causality Angang Newsteel Co Ltd # HK ←→China
Jilin Chemical Industrial Co Ltd HK China
Guangdong Kelon Electrical Holdings Co Ltd HK → China Jingwei Textile Machinery Co Ltd HK → China Shandong Xinhua Pharmaceutical Co Ltd HK China
Northeast Electric Development Co Ltd HK China
→: Granger Cause ←→: Mutually Granger Cause : Independent # : H-Shares Index constituent stocks
43
9.7b Granger Causality Summary 2 Granger Causality Result at 5% level of significance Numbers of stocks
HK Granger Cause China 13
China Granger Cause HK 4
Mutually Granger Cause 3
Total 29
44
9.7c Granger Causality Summary 3 Stocks Code
of
HKSE
Volume
Granger
Causality
Mkt
Cap
Anhui Conch Cement Co Ltd # 914 600585 HK 2002 Resources 0.80% same HK → China 3292
Beiren Printing Machinery Holdings Ltd 187 600860 HK 1994 Industrial Mechism N/A China HK → China 250
Guangdong Kelon Electrical Holdings Co Ltd 921 921 HK 1999 Industrial Mechism N/A HK HK → China 823
Sinopec Yizheng Chemical Fibre Co Ltd # 1033 600871 HK 1995 Petrochemical 0.50% HK HK → China 2044
Jiangxi Copper Co Ltd # 358 600362 HK 2002 Resources 1.20% HK HK → China 4886
China Shipping Development Co Ltd # 1138 600026 HK 2002 Shipping 2.20% HK HK → China 8748
Huaneng Power International Inc # 902 600011 HK 2001 Power 4.10% HK HK → China 17874
China Petroleum and Chemical Corp # 386 600028 HK 2001 Power 13.40% HK HK → China 53278
Dongfang Electrical Machinery Co Ltd 1072 600875 HK 1995 Industrial Mechism N/A HK HK → China 1224
Tsingtao Brewery Co Ltd # 168 600600 same 1994 Other 0.80% HK HK → China 3357
Jingwei Textile Machinery Co Ltd 350 666 same 1996 Industrial Mechism N/A HK HK → China 356
Tianjin Capital Environmental Protection Co Ltd 1065 600874 HK 1995 Other N/A HK HK → China 935
Anhui Expressway Co Ltd 995 600012 HK 2003 Transportation N/A China HK → China 2256
Jiaoda Kunji High-Tech Co Ltd 300 600806 China 1994 Industrial Mechism N/A China HK ← China 79
Maanshan Iron and Steel Co Ltd # 323 600808 same 1994 Resources 1.20% HK HK ← China 4766
Yanzhou Coal Mining Co Ltd # 1171 600188 same 1998 Resources 3.30% HK HK ← China 13403
China Eastern Airlines Corporation Ltd # 670 600115 same 1997 Transportation 0.50% HK HK ← China 2178
Nanjing Panda Electronics Co Ltd 553 600775 same 1996 Industrial Mechism N/A HK HK ←→ China 305
Angang Newsteel Co Ltd # 347 898 same 1997 Resources 1% HK HK ←→ China 4161
Guangzhou Shipyard International Co Ltd 317 600685 same 1994 Shipping N/A same HK ←→ China 354
Sinopec Shanghai Petrochemical Co Ltd # 338 600688 China 1994 Petrochemical 1.80% HK HK China 7456
Guangzhou Pharmaceutical Co Ltd 874 600332 HK 2001 Pharmacy N/A HK HK China 440
China Southern Airlines Company Ltd # 1055 600029 HK 2003 Transportation 0.80% China HK China 2994
Shandong Xinhua Pharmaceutical Co Ltd 719 756 same 1997 Pharmacy N/A HK HK China 179
Luoyang Glass Co Ltd 1108 600876 HK 1995 Other N/A HK HK China 255
Shenzhen Expressway Co Ltd # 548 600548 HK 2001 Transportation 0.50% HK HK China 2130
Jilin Chemical Industrial Co Ltd 368 618 HK 1996 Petrochemical N/A HK HK China 2219
Jiangsu Expressway Co Ltd # 177 600377 HK 2001 Transportation 1% HK HK China 4338
Northeast Electric Development Co Ltd 42 585 same 2000 Industrial Mechism N/A * HK China 173
45
Weighting: Weighting in Hang Seng China Enterprise Index (H-Shares Index)
* Trading volume of 0042 cannot be obtained
( )
ML
China Petroleum and Chemical Corp HK Granger Casue China 1 1 18.84 18.66
China Granger Cause HK 1 1 0.00 0.00
Huaneng Power International Inc HK Granger Casue China 1 2 10.61 10.54
Yanzhou Coal Mining Co Ltd HK Granger Casue China 1 1 2.26 2.25
China Shipping Development Co Ltd HK Granger Casue China 1 1 10.63 10.55
Sinopec Shanghai Petrochemical Co Ltd HK Granger Casue China 1 1 1.37 1.33
Jiangxi Copper Co Ltd HK Granger Casue China 1 1 13.58 13.47
Maanshan Iron and Steel Co Ltd HK Granger Casue China 1 1 1.68 1.68
Jiangsu Expressway Co Ltd HK Granger Casue China 1 1 2.22 2.21
Tsingtao Brewery Co Ltd HK Granger Casue China 1 1 4.90 4.89
Anhui Conch Cement Co Ltd HK Granger Casue China 1 1 9.06 9.00
China Southern Airlines Company Ltd HK Granger Casue China 3 1 2.57 2.27
Anhui Expressway Co Ltd HK Granger Casue China 2 2 0.04 10.74
China Granger Cause HK 1 2 8.60 -6.02
China Eastern Airlines Corporation Ltd HK Granger Casue China 1 1 11.32 2.56
Shenzhen Expressway Co Ltd HK Granger Casue China 2 1 0.42 0.42
46
Sinopec Yizheng Chemical Fibre Co Ltd HK Granger Casue China 1 1 11.32 11.29
Dongfang Electrical Machinery Co Ltd HK Granger Casue China 3 1 12.85 12.81
Tianjin Capital Environmental Protection Co Ltd HK Granger Casue China 4 1 9.12 9.10
47
9.8 Granger Causality Result (lags selected by Schwarz Information Criterion)
Stocks Null Hypothesis Lag
of ML
Guangzhou Pharmaceutical Co Ltd HK Granger Casue China 1 1 3.44 3.43
Guangzhou Shipyard International Co Ltd HK Granger Casue China 1 1 5.74 5.73
Nanjing Panda Electronics Co Ltd HK Granger Casue China 1 1 4.24 4.23
Luoyang Glass Co Ltd HK Granger Casue China 1 1 0.82 0.82
Beiren Printing Machinery Holdings Ltd HK Granger Casue China 4 1 6.04 6.03
Jiaoda Kunji High-Tech Co Ltd HK Granger Casue China 2 1 2.77 2.77
Angang Newsteel Co Ltd HK Granger Casue China 1 1 9.61 9.58
Jilin Chemical Industrial Co Ltd HK Granger Casue China 5 1 0.09 0.07
Guangdong Kelon Electrical Holdings Co Ltd HK Granger Casue China 5 1 5.20 5.19
Jingwei Textile Machinery Co Ltd HK Granger Casue China 10 1 8.94 8.92
Shandong Xinhua Pharmaceutical Co Ltd HK Granger Casue China 1 1 0.32 0.32
Northeast Electric Development Co Ltd HK Granger Casue China 1 1 0.31 -4.24
Critical F-value at 5% level of significance: 3.84
Critical X2-value at 5% level of significance at 1 degree of freedom: 3.84146
Lags A: Current value of X explained by past value of X
Lags B: Current value of X explained by past value of Y
Value of OLS: obtained from the Joint Test of significance at 5% level of significance
Value of ML obtained from the Likelihood Ratio Test at 5% level of significance
48
9.9 Granger Causality Result by fixed lag length method
iit
n
China Petroleum and Chemical Corp HK Granger Casue China 0.60
China Granger Cause HK 0.75
Huaneng Power International Inc HK Granger Casue China 0.0012***
Yanzhou Coal Mining Co Ltd HK Granger Casue China 0.13
China Granger Cause HK 0.015***
China Shipping Development Co Ltd HK Granger Casue China 0.0012***
Sinopec Shanghai Petrochemical Co Ltd HK Granger Casue China 0.24
China Granger Cause HK 0.06*
Jiangxi Copper Co Ltd HK Granger Casue China 0.0003***
Maanshan Iron and Steel Co Ltd HK Granger Casue China 0.20
China Granger Cause HK 0.05**
Jiangsu Expressway Co Ltd HK Granger Casue China 0.14
Tsingtao Brewery Co Ltd HK Granger Casue China 0.03**
Anhui Conch Cement Co Ltd HK Granger Casue China 0.003**
China Southern Airlines Company Ltd HK Granger Casue China 0.13
Anhui Expressway Co Ltd HK Granger Casue China 0.54
China Eastern Airlines Corporation Ltd HK Granger Casue China 0.13
Shenzhen Expressway Co Ltd HK Granger Casue China 0.55
49
Sinopec Yizheng Chemical Fibre Co Ltd HK Granger Casue China 0.0008***
Dongfang Electrical Machinery Co Ltd HK Granger Casue China 0.0004***
Tianjin Capital Environmental Protection Co Ltd HK Granger Casue China 0.003
50
9.9 Granger Causality by fixed lag length method
Stocks Null Hypothesis P-Value
Guangzhou Shipyard International Co Ltd HK Granger Casue China 0.017**
Nanjing Panda Electronics Co Ltd HK Granger Casue China 0.04**
Luoyang Glass Co Ltd HK Granger Casue China 0.37
Beiren Printing Machinery Holdings Ltd HK Granger Casue China 0.02**
Jiaoda Kunji High-Tech Co Ltd HK Granger Casue China 0.12
Angang Newsteel Co Ltd HK Granger Casue China 0.002**
Jilin Chemical Industrial Co Ltd HK Granger Casue China 0.79
Guangdong Kelon Electrical Holdings Co Ltd HK Granger Casue China 0.03**
Jingwei Textile Machinery Co Ltd HK Granger Casue China 0.002***
Shandong Xinhua Pharmaceutical Co Ltd HK Granger Casue China 0.57
Northeast Electric Development Co Ltd HK Granger Casue China 0.60
All stocks are tested at a fixed lag length of 1 day
51
9.10a – Shanghai A-Shares Index
SZE A
5- O
ct -9
Hang Seng China Enterprises
4
52
9.11 Granger Causality Result (without including returns on exchange rate)
Stocks Null Hypothesis Lags
ML
China Petroleum and Chemical Corp HK Granger Casue China 1 1 19.23
China Granger Cause HK 1 1 0.00
Huaneng Power International Inc HK Granger Casue China 1 1 10.69
Yanzhou Coal Mining Co Ltd HK Granger Casue China 1 2 2.48
China Shipping Development Co Ltd HK Granger Casue China 1 1 10.62
Sinopec Shanghai Petrochemical Co Ltd HK Granger Casue China 1 1 0.90
Jiangxi Copper Co Ltd HK Granger Casue China 1 1 13.76
Maanshan Iron and Steel Co Ltd HK Granger Casue China 1 1 1.74
Jiangsu Expressway Co Ltd HK Granger Casue China 1 1 2.04
Tsingtao Brewery Co Ltd HK Granger Casue China 1 1 4.88
Anhui Conch Cement Co Ltd HK Granger Casue China 1 1 9.05
China Southern Airlines Company Ltd HK Granger Casue China 3 1 2.48
Anhui Expressway Co Ltd HK Granger Casue China 2 2 10.83
China Granger Cause HK 1 2 -5.98
China Eastern Airlines Corporation Ltd HK Granger Casue China 1 1 2.51
Shenzhen Expressway Co Ltd HK Granger Casue China 2 1 0.43
Sinopec Yizheng Chemical Fibre Co Ltd HK Granger Casue China 1 1 11.35
Dongfang Electrical Machinery Co Ltd HK Granger Casue China 3 1 12.83
Tianjin Capital Environmental Protection Co Ltd HK Granger Casue China 4 1 8.94
53
9.11 Granger Causality Result (without including returns on exchange rate)
Stocks Null Hypothesis Lag
of ML
Guangzhou Pharmaceutical Co Ltd HK Granger Casue China 1 1 3.55
Guangzhou Shipyard International Co Ltd HK Granger Casue China 1 1 5.14
Nanjing Panda Electronics Co Ltd HK Granger Casue China 1 1 4.27
Luoyang Glass Co Ltd HK Granger Casue China 1 1 0.88
Beiren Printing Machinery Holdings Ltd HK Granger Casue China 4 1 6.09
Jiaoda Kunji High-Tech Co Ltd HK Granger Casue China 2 1 2.78
Angang Newsteel Co Ltd HK Granger Casue China 1 1 9.59
Jilin Chemical Industrial Co Ltd HK Granger Casue China 5 1 0.11
Guangdong Kelon Electrical Holdings Co Ltd HK Granger Casue China 2 1 5.42
Jingwei Textile Machinery Co Ltd HK Granger Casue China 5 1 9.03
Shandong Xinhua Pharmaceutical Co Ltd HK Granger Casue China 1 1 0.33
Northeast Electric Development Co Ltd HK Granger Casue China 1 1 -8.86
Value of ML obtained from the Likelihood Ratio Test at 5% level of significance
54
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Abstract

The Interrelationships of Dual Listed Stocks in Hong Kong ...

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