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 complex
environment. 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.