Political uncertainty and A-H share premium

Using the turnover of city-level local leaders in Mainland China, we construct a measure of political uncertainty and use this measure to explain the change of A–H share premium. Our empirical evidence shows that political uncertainty significantly reduces A–H share premium. The reduction effect is low for the turnovers with low political uncertainty and more institutional ownership and strong for firms with more political exposure and in cities with low marketization levels and economic conditions. Our results are robust to alternative specifications. Overall, this study contributes the literature by presenting political determinants of a long-existed puzzle in asset pricing.