Paper ID

1689

Paper Type

full

Description

The Shanghai-Hong Kong Stock Connect (SH-HK Stock Connect) is a cross-boundary investment channel that connects Shanghai and the Hong Kong Stock Exchange. The A-H pairs trading is an algorithmic trading strategy for A shares and H shares of the same company. It might seem intuitive that the SH-HK Stock Connect helps to eliminate the inefficiency of stock pricing of dual-listed companies, and thus dramatically reduces the profitability of A-H pairs trading. Surprisingly, we find that the A-H pairs trading strategy is still profitable after the SH-HK Stock Connect. However, the ideal formation period and trading period become shorter.

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Impact of the Shanghai-Hong Kong Stock Connect on the Performance of A-H Pairs Trading

The Shanghai-Hong Kong Stock Connect (SH-HK Stock Connect) is a cross-boundary investment channel that connects Shanghai and the Hong Kong Stock Exchange. The A-H pairs trading is an algorithmic trading strategy for A shares and H shares of the same company. It might seem intuitive that the SH-HK Stock Connect helps to eliminate the inefficiency of stock pricing of dual-listed companies, and thus dramatically reduces the profitability of A-H pairs trading. Surprisingly, we find that the A-H pairs trading strategy is still profitable after the SH-HK Stock Connect. However, the ideal formation period and trading period become shorter.