The Comovement And Jumping Behavior Between Mainland And Hongkong Stock Market Under The Background Of Shanghai-Hong Kong Stock Connect Program

With the development of the globalization of the capital market and the further deepening of China’s financial reform, Cooperation between the capital markets in various countries (regions) has been strengthened, and the relationship has become more and more closely. Through the QFII system, QDII system and the reform of equity division in China, a series of policies to gradually improve the opening to the outside of the capital market, and improve the operating environment of China’s capital market. Under the background of the global capital market integration, only a single market, and the lack of overall consideration of the operation of the stock market, will inevitably lead to the low efficiency of resource allocation.The study on the comovement and jumping of stock market between Shanghai and Hong Kong before and after the opening of Shanghai-Hong Kong Stock Connect program, On the one hand is conducive to cross market investors to avoid the potential market risk, rational and effective allocation of assets, on the other hand is for the government to formulate policies in line with the operating rules of the market, and promote the long-term healthy development of the two stock markets and two the two economies, accelerate the speed of opening-up of China’s capital market. Based on this, this paper will study the comovement and jumping behavior between Mainland and Hongkong stock market under the background of Shanghai-Hong Kong Stock Connect program.This paper selects the 3/17/2014 to 11/17/2015, the Shanghai Composite Index and the Hang Seng Index as the research object, and to the opening of Shanghai-Hong Kong Stock Connect program as a cut-off point is divided for two stages. Firstly, using daily frequency data and based on the cointegration test, Granger causality test, VAR model, pulse response and variance decomposition, to comparative analysis the comovement before and after the opening of Shanghai-Hong Kong Stock between the two stock markets, shows that the opening of the Shanghai and Hong Kong Stock Connect program strengthen the comovement between the two stock markets. Secondly using the LM jump test and high frequency data of five minutes, to study the jump behavior between Shanghai and Hong Kong’s stock markets, and inspection the stability of asset price before and after the opening of Shanghai-Hong Kong Stock between the two stock markets. The results shows that after the opening, the frequency and amplitude of jump of Shanghai Composite Index and the Hang Seng Index are significantly increased. The degree of instability were increased both Shanghai and Hong Kong’s stock markets, and the degree of instability of Shanghai is much higher than that of Hong Kong. Finally, on the basis of the empirical conclusions, this paper aimed at investors and policy makers respectively, puts forward the corresponding Suggestions.