The impact of the QDII reform on the Chinese AH share price premium:

Abstract: This paper examines one of the most distinct characteristics of the Chinese stock market, i.e. the persistent share price premium between shares restricted to domestic investors, traded in the two Mainland China stock exchanges, and the equivalent shares restricted to foreign investors, traded on the Hong Kong stock exchange. The purpose of this study is to investigate the impact of a recent reform, namely the QDII investment scheme that allows authorized Chinese institutions to invest in overseas capital markets, on this share price premium. Based on previous research, we develop four different models and apply these in two event studies to measure and analyze the reaction in the share price premium to the initial announcement and the subsequent expansion of the QDII policy. This study shows that the announcements of the QDII policy and the subsequent expansion had negative short-term effects on the share premium, which confirms the effectiveness of the policy. Our results reveal information leakages prior to the initial announcement and certain persistency in the effect afterwards. Most of the convergence in share prices on the Mainland China stock exchanges and the Hong Kong stock exchange seems to have been incorporated around the initial announcement.