Has The Opening Of The Capital Market Changed Stock Return Characteristics?

Capital market openness is a vital part of the Chinese open policy.Since the stock connect between Shanghai,Shenzhen and Hong Kong was launched,its influence on Chinese market has drawn extensive attention of researchers.However,rather than focus on influence on investment style,most studies pay their attention on its macro influence.Given that overseas investors have great advantages on information acquisition information interpretation than mainland investors,the investment decision they make must have significant differences,and such differences would generate differences on investment styles between these two kinds of investors when they become common.This paper refers to Chan’s(2002)measurement of investment style,finds that the investment styles of overseas investors and mainland investors based on size and BM(Book-to-market)have significant differences.Investment behavior can influence stocks’ return and its components.Nowadays,the factor model that explains returns has been updated,but the three factors model put forward by Fama and French(1993)always been adopted by most investors.If the the factor loading changes significantly,it means the change of stock characteristics.By studying the influence of the stock connect on the coefficient of factors,our paper finds that the inclusion of the target will bring about significant changes in individual stocks’ characteristics.More precisely,it means the factor loading of SMB and HML significantly decreases,and the factor loading of MKT significantly increases.Meanwhile,the study on QFII draws the same conclusion.Further,to make our conclusions robust,our paper conducts the Placebo test and Endogeneity test.And the results meet our expectations,which means the changes of stock characteristics indeed come from the impact of the stock connect policy.So far,this paper verifies that the openness of stock market can influence individual stock characteristics by influencing investors’ behavior.One of the outstanding features of this paper is that it connects macro and micro well,and it dues to we rigorously proves the micro effects of the macro policies.Another outstanding features of this paper is that we link investors’ behavior with individual stock characteristics skillfully,which not only deepens the related research of investors’ investment behavior,but also enriches the current academic research direction of stocks.The change of individual stock characteristics can also result in the change of the reflection on important things of individual stock.In the next pat of our study,we measured the financial information by the change value of financial data and the quality of financial data,and prove that it is the difference on stock characteristics between the target stocks and the non-target stocks that leads to the difference of their reflection on financial information,that is,the change of the stock characteristics will lead to the change of their reflection on financial information.Finally,our framework must be that the openness policy introduce a large number of overseas investors to our market,and they have advantages on the interpretation of financial information than mainland investors,which can generates the difference of investment behaviour between them.And it can further leads to the difference on stock characteristics between target stock and non-target stock,and ultimately leads to the difference in the reflection of financial information of these two types of stocks.