Does stock pricing power return to a shares market: Evidence from the “A+H” shares?

For the issue of the return of A sharespsila pricing power which is widely disputed in securities industry in late 2006 and early 2007, we employ a multivariable GARCH model to investigate the leaderships of returns and variance between the A shares and H shares which cross-list in the Mainland and the Hong Kong stock market by developing composite indices of A shares and H shares portfolio respectively to represent their stock prices. The significance of this research is: Through the test of the leadership between A shares and H shares, we directly answer the problem of pricing power, and at the same time, give investors the decision-making reference; and provide the judgment for the power of price discovery. This empirical research finds: from mid-2003 to mid-2005, H shares lead significantly A shares on the returns, but the spillover effects between them was not significant; after mid-2005, the linkage effects both of the returns and volatility markedly strengthened, and the two-way leaderships were significant; but from the entire sample period, H shares has a little more obvious effect on A shares, which shows that H shares still occupy a certain advantage in the price discovery. Thus, it is too early to draw the conclusion that the pricing power has returned to A shares, but we can foresee that with the returning to A shares market of numerous state-owned enterprises blue chips listed in Hong Kong as well as the rapid development of A shares market, the linkage between the two markets will be more closely, and the A shares price demonstration effect will become more prominent.