Individual investors' propensity to speculate and A-share premiums in China's A-shares and H-shares

We explore factors that contribute to A-share premiums (ASPs) using a sample of 94 cross-listed Chinese firms. We construct proxies of individual investors' propensity to speculate to investigate the association between the speculative motivation and the ASP. This study finds results that are consistent with predictions of behavioral finance theory: When individual investors speculate on a clientele of A-shares, which are characterized by costly to arbitrage or whose issuing firms are attractive to speculative picks, this clientele of A-shares enjoys persistent higher ASPs than other cross-listed A-shares. This finding is robust after controlling for relevant factors reported by previous studies.