Influences Of Shanghai-Hong Kong Stock Connect On The Co-movement Between A-share And Hong Kong Stock Markets

With the development of economic globalization and the opening of China's financial and capital markets,cross-border financing of listed companies and cross-market trading behavior of investors are becoming more and more frequent,rendering the interaction between different financial markets increasingly obvious.The mainland and Hong Kong stock markets are not exceptional.The phenomenon of rise and fall simultaneously of the two markets has become common,and communication and exchange of information are increasingly close.Since the Reform and Opening-up of China mainland and the return of Hong Kong,economic and trade cooperation between the two markets have become increasingly frequent.Hong Kong is the premier area for mainland investment abroad and China mainland is the most important area for Hong Kong's capital outflow.The two governments are also active in the innovation of implementation of capital market system cooperation,seeking further integration in the capital markets.The signing of the CEPA agreement provides institutional support for mainland enterprises to go public in Hong Kong or to achieve multiple listings.QFII and QDII system have been introduced,so that domestic capital can participate in the Hong Kong capital market and Hong Kong or foreign capital can direct participate in in the A-share market indirectly.November 17,2014,Shanghai-Hong Kong Stock Connect(‘SH-HK Stock Connect' for short)was officially "opened to traffic",which made Shanghai investors accessible to Hong Kong stock market,and vice versa.On the first day,the amount all run out for the Shanghai Stock Connect,showing that enthusiasm of Hong Kong and overseas investors on the mechanism.In December 2016,Shenzhen-Hong Kong Stock Connect was also officially opened.SH-HK Stock Connect is another exploration for the domestic capital to go out,and for the introduction of Hong Kong and foreign capital.Thanks to the establishment of technical connections between Shanghai and Hong Kong Stock Exchange,investors are allowed to directly buy stocks from their counterparty stock exchange,which is more innovative than QFII and QDII.This paper takes the important event of SH-HK Stock Connect as the breakthrough point,and use empirical method to study whether the mechanism affects the linkage between the Shanghai and Hong Kong stock markets and the result.In this paper,the sample interval is divided into two stages —— before and after the implement of SH-HK Stock Connect.The paper draws the following conclusions after the introduction of dummy variables,the establishment of univariate GARCH model and Granger causality test.First,the interaction between A shares and Hong Kong stocks markets are more obvious after SHHK Stock Connect is put into pratice.Second,there is a interaction circulation among the Ashare,Hong kong and the stocks of Shanghai Stock Connect part,therefore,in terms of the connectivity mechanism,stocks of Shanghai Stock Connect part plays a very important role in the interaction of A shares and Hong Kong stocks.Finally,by analyzing of the empirical results,several suggestions are proposed on investors' allocation of asset to diversification risk,as well as policy and system improvements in SH-HK Stock Connect and in the internationalization of A-share marke.