Resumen
This paper empirically examines whether differences in cost of capital and liquidity between domestic and foreign investors are important factors that help explain the price difference between Chinese A shares on the domestic markets and their matching H shares on the Hong Kong Stock Exchange during the period of July 1993 and December 2003. Using time-series analyses, we find that for the majority of the companies that listed their shares on both markets, lower cost of capital and greater liquidity of the Chinese market explain partly the A to H share price premiums. This result is in contrast to the conventional wisdom that firms cross list on the market with lower cost of capital and greater liquidity. Our findings suggest that it is an interesting area for future research to examine the benefit and the impact of cross-listing for Chinese companies. Keywords: market segmentation, cross-listing, cost of capital, liquidity