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Showing posts with the label TianJinZhongXin

Law of One Price

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I discovered a market mispricing of a company named Tianjin Zhongxin while scouring through the internet and blogger posts. One seemingly promising pharmaceutical company dual listed in China and Singapore, apparently has arbitrage opportunity between 2 markets. I am not sophisticated enough to buy a share in Singapore, do a cross border to Hong Kong and trade it via Hong Kong stock connect to earn arbitrage profit from TJZX Shares. (Not sure if is it even allowed) Nor am I brave enough to do a proper arbitrage position by longing in Singapore and SHORTING in China Stock connect. (I believe china does not allow shorting of most shares).  Shorting is a no go for me as you incur limited profits and potential unlimited liability!!! I will not be able to execute a convergence trade strategy explained by Benjamin Graham, but there is definitely upside potential for longing TJZX SG. https://en.wikipedia.org/wiki/Convergence_trade I am going to do some research regarding

Convergence trading

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In economics, there was a widely accepted theory named the Law of one price, whereby the same good should be sold at the same prices, if you remove the transportation, for-ex and other administrative and misc costs. The popular Big Mac index is a popular illustration of this concept although its credibility is also disputed https://en.wikipedia.org/wiki/Law_of_one_price https://en.wikipedia.org/wiki/Big_Mac_Index is a so called popular Surprisingly, there is little documentation about convergence trades in academia finance, despite sharing common roots. Economics explaining why money functions and how it flows, and finance tracking its actual movements and on the practical applications. My curiosity is piqued when I was made aware of HSBC HK/ HSBC UK, TJZX China A and TJZX SG, and this recent discovery, HKL USD and HKL GBP. Theoretically, in efficient financial markets, the law of one price should hold, and triangular arbitrage should eliminate pricing anomaly. In ac