Study On The Jump And Diffusion Correlations Between A-shares Market And HK Stock Market Under The Stock Connect Program

In order to accelerate the development of financial market in our country,China has launched the Shanghai-Hong Kong Stock Connect Program and the Shenzhen-Hong Kong Stock Connect Program in recent years.On the one hand,this is a significant institutional innovation in China’s financial market,which not only helps to promote the cross-border flow of funds,but also helps to promote the gradual integration of the A-shares market with the international market.But on the other hand,the A-shares market will be suffered from greater risk exposure.Under the background,this paper studies the jump and diffusion correlations between the A-shares market and HK stock market from two aspects of stock index and A+H shares.This paper applies the Markov-modulated jump diffusion model to study the correlation difference under different regimes between A-shares market and HK stock market and analyze its changes before and after the policy implementation.Besides,this paper uses diffusion correlation and jump correlation to analyze the causes of the difference and its changes and then analyzes the policy effect of the stock connect programs.Through the empirical study,we find out that there exists significant correlation difference under different regimes between A-shares market and Hong Kong stock market,and the correlation is significantly higher in the high fluctuation state than that in the low fluctuation state.Besides,the correlation difference has changed greatly after the implementation of the stock connect program.During the period between the Shanghai-Hong Kong Stock Connect Program and the Shenzhen-Hong Kong Stock Connect Program,the correlation difference under different regimes has been weakened,mainly because the correlation difference of the jump component is obviously weakened;The correlation difference under different regimes increases significantly after the Shenzhen-Hong Kong Stock Connect Program,mainly because of the significant increase in the correlation difference of the jump component.For the A+H shares,the correlation difference under different regimes doesn’t change a lot during the second period but significantly increases after the Shenzhen-Hong Kong Stock Connect Program.This is mainly due to the significant decrease in the diffusion correlation under low fluctuation for Shanghai-Hong Kong cross-listed stocks.And for Shenzhen-Hong Kong cross-listed stocks,it is mainly because of the significant increase in the diffusion correlation under high fluctuation and the significant decrease in the diffusion correlation under low fluctuation at the same time.At present,domestic scholars mainly research on the dynamic correlation and tail correlation in the study of correlation between different stock markets,and pay less attention to the jump correlation.The main contribution of this paper is to analyze the jump and diffusion correlations between A-shares market and Hong Kong stock market under different regimes for the first time,and to reveal the policy effect of the stock connect program by analyzing the change of correlations.