Explanation of Valuation Variance Between A-shares and H-shares Perspective from Behavioral Finance

A-shares and H-shares are important components of China's capital market. Although they are geographically close, there are great differences in valuation between the two markets for similar types of stocks and even for stocks of the same company. To clarify the valuation differences and their underlying reasons and to help investors and policy decision-makers better understand the characteristics of China's capital market, based on the perspective of behavioral finance, I attempt to explain the valuation performance differences between the two stock markets. Specifically, this paper points out the existence of such differences through a literature review from three aspects: overall market differences, differences in stocks across industries, and differences in individual stock prices. Then, from the three behavioral finance perspectives of investor structure differences, herd effect, and investor sentiment, it summarizes the explanations of the academic community for these differences. The results show that, except for the explanatory power of investor structure for the differences remaining controversial, the other two behavioral finance perspectives have certain explanatory power for these differences. This study has broadened the research scope of behavioral finance in the financial field and provided a basis for investors to conduct effective transactions.