Empirical analysis reveals ETF Connect reduces A/H premium, indicating enhanced market efficiency and integration.
Seng China A/H Premium Index, taking into account variables measuring exchange rate, market sentiment, and the A/H risk-free spread. The empirical results show that the ETF Connect initially increased the A/H premium, due to market adjustment and external factors like the Federal rate hikes. With several subsequent expansions as well as improvement, the ETF Connect then significantly reduced the premium, suggesting improved market efficiency and integration. In this work, we conclude that ETF Connect has the potential to further narrow the A/H share premium, especially in the post-pandemic and rate-cutting environment, thereby promoting value investing in the A-share market. This study contributes to the literature by providing a macro perspective on the correlation between the ETF Connect and the A/H premium, highlighting the importance of capital market integration in reducing price discrepancies and fostering a more efficient investment landscape.
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Zuo et al. (2025) studied this question.
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