An empirical study on the threshold cointegration of Chinese A and H cross-listed shares

Abstract

We investigate the dynamic relationship between the prices of Chinese A and H market cross-listed shares using the Enders-Siklos threshold cointegration approach. Our data are the daily closing prices of the Hang Seng China AH (A) index and the Hang Seng China AH (H) index from 4 January 2006 to 1 November 2013. We find a threshold cointegration between these two indices, instead of the linear cointegration well established in the literature. The short-term adjustment to the equilibrium shows an asymmetric effect according to the price deviation from the equilibrium. Moreover, using a Granger causality test, we find a bi-directional causality between these two markets, indicating a close relationship between them. A pairs trading rule, based on the estimated threshold cointegration model, demonstrates the usefulness of our results as it generates a significantly higher return than a naive buy-and-hold trading rule.

One country, two systems? The heavy-tailedness of Chinese A- and H- share markets

“…The estimation results indicate that some A-and H-shares may have infinite second moments, which indicates the inapplicability of many classical econometric models such as OLS regressions and autoregressive models (Ibragimov et al, 2013). Apparently, the cointegration relationship (Su et al, 2007;Cai et al, 2011;Chen and Zhu, 2015) and thus the convergence trading strategy (Liu and Timmermann, 2013) based on it may not be valid under this circumstance. In addition, for most of them, the third and fourth moments may be (or are) infinite.…”

“…For these dual-listed companies, their A-and H-shares are traded at different prices even with same dividends and voting rights (Liu and Timmermann, 2013), which is a puzzle in Chinese stock market (Fernald and Rogers, 2002) and attracts a lot of research interest (among others, see the reviews in Zhang and Zhang (2017)). More recently, some studies (Su et al, 2007;Cai et al, 2011;Chen and Zhu, 2015) noted cointegration relationships between the prices of A-and H-shares for dual-listed companies. Liu and Timmermann (2013) further argued that a pairs trading strategy may exploit these cointegration relationships.…”

Asymmetric Threshold Cointegration and Nonlinear Adjustment Between Oil Prices and Financial Stress

“…The above specifications are able to distinguish between long-run and shortrun adjustments of x t and y t . The long-run adjustment is determined by the parameters δ + and δ − , whereas, the short-run adjustment is governed by the parameters α α β j j j In this paper, four types of single or joint null hypotheses and F-tests are examined (Meyer and Von Cramon-Taubadel, 2004;Frey and Manera, 2007;Sun, 2011;Chen and Zhu, 2015;Mighri and Mansouri, 2016). The first type is the Granger causality test to examine the lead-lag relationship between x t and y t .…”

Re-evaluating the energy consumption-economic growth nexus for the United States: An asymmetric threshold cointegration analysis

“…Firstly, we investigate the asymmetric relationship between economic growth and energy consumption using a threshold cointegration approach, while examining the adjustment in the short term via asymmetric error correction model with threshold cointegration. This econometric approach has previously been used for the examination of asymmetric price transmission (Al- Gudhea et al, 2007;Asane-Otoo and Schneider, 2015;Chen et al, 2005;Chen and Zhu, 2015;Kollias et al, 2016;Mighri and Mansouri, 2015;Sun, 2011;Tsai et al, 2012). In this paper, we apply this framework at economic growth-energy consumption context in order to investigate for nonlinearities.…”