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Using the daily data for 38 companies during the period of 2009-2013, this article examines the long-run equilibrium between the stock prices of firms dual listed on A-share market in China and H-share market in Hong Kong, and exploits the arbitrage opportunity for investors. We propose a simple self-financing trading strategy which is derived from the short-run disequilibrium price path. Our results demonstrate that cointegration and error-correction mechanism exist between the A-share and the H-share. In addition, our proposed trading strategy actually beats the markets and provides superior performance in terms of Sharp Ratio and value at risk statistics. Further analysis on international asset pricing model demonstrates that our trading strategy yields an average annualized excess return of about 17.6% when adjusted for the systematic risk.

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