A Study On The Spillover Effect Of Shanghai Stock Market And Hong Kong Stock Market

In November 17,2014,China officially opened Shanghai-Hong Kong Stock Connect Program, which marks the two-way opening of China’s capital market has made a big breakthrough, and is also an important milestone in the mainland capital market opening. This program provides the possibility of cross market transactions for investors of both Shanghai and Hong Kong. At the same time, the link between Shanghai market and Hong Kong market is more closely. So what is the spillover effect between the two markets’cross listed stocks? How about the information transmission between the two markets? What is the influence of the Shanghai-Hong Kong Stock Connect Program’s opening to the two markets’ spillover effect? In order to investigate these problems, this paper selects 68 stocks that are in the list of cross listed stocks as sample using their transaction data from 2013.11.18-2015.11.17 to draw up Shanghai index and Hong Kong index, then using this two indexes to analysis their spillover effect and the change of the effect before and after the Shanghai-Hong Kong stock connect program’s opening.VAR model, Granger causality test and BEKK-GARCH model is used to test and verify the spillover effect.Empirical content mainly has three parts:1,verifying the spillover effect between Shanghai index and Hong Kong index;2,introducing the component index and Hang Sheng Hong Kong 35 index to analyze the internal factors of the spillover effect between the two indexes;3,analyzing the spillover effect after joining the exchange rate factor. Empirical result shows that there is no significant mean spillover effect and volatility spillover effect to each other between the two indexes in the first stage; in the second stage, there is significant mean and volatility spillover effect between the two indexes; after introducing the Shenzhen component index it shows that the internal factor of these spillover effects is the micro management information of domestic enterprise; After the introduction of the Hang Sheng Hong Kong 35 index analysis shows that the impact of the A+H Hong Kong index on the spillover effect of the A+H Shanghai index is due to the deep information after the Hong Kong market investors interpret the micro business information of domestic enterprises; after considering the exchange rate factor, the results of spillover effects of the two indexes in two stages is consistent with no exchange rate’s spillover effect.Article finally proposed some investment advice according to the conclusions of empirical research:with the Shanghai-Hong Kong Stock Connect Program’s opening and gradually running, the price difference between cross-listed A shares and H shares will be gradually eliminated, the two markets will gradually effective and using price discovery function of historical returns to achieve arbitrage will gradually become difficult and impossible, investors should accurately grasp the opportunity and operation on time.