Study On The Economic Effect Of The Implementation Of Shanghai-hong Kong Stock Connect System

The Stock Connect system of Shanghai and Hong Kong is a significant institutional innovation of the interconnection between the two stock exchanges,which was jointly launched by the Shanghai Stock Exchange and the Hong Kong Stock Exchange on November 17,2014.The implementation of this system is not only an indispensable part of deepening the reform of the mainland stock market,but also a landmark measure of opening up the mainland capital market.Theoretically speaking,on the one hand,the implementation of the Shanghai-Hong Kong Stock Connect system is conducive to promoting the free flow of funds between Shanghai and Hong Kong,facilitating investors to carry out cross-market portfolio investment and diversifying investment risks,but also helping to activate the transaction between the two markets,optimize the allocation of resources,and enhance market efficiency;on the other hand,by interconnecting with the finely developed Hong Kong stock market,we can introduce more mature institutional investors and investment concepts for the mainland market,improve the structure of mainland investors,and then anti-drive the mainland stock market to connect with the mature market and narrow the gap between the markets in system construction,market environment,the structure and notion of investors,and so on.These points are not only the motivation for the launch of the Stock Connect,but also the long-term strategic significance of the Stock Connect system.Nevertheless,because the Stock Connect has been implemented for only a few years,relevant research is still severely limited,mostly focusing on its long-term strategic significance,less concentrating on practicalities.In fact,it's harder to do than to say,so the key is how to solve this problem.In order to have a clear grasp of the economic effect of the implementation of the Stock Connect system,this paper combs the relevant literature and theory.First of all,based on the intuitive analysis of the implementation of the Shanghai-Hong Kong Stock Connect background and operation of the situation,it focuses on the market relationship between Shanghai and Hong Kong before and after the implementation of the Stock Connect(that is,the degree of market segmentation and the degree of integration),the market price difference and the change of investors' expectations.Several interrelated aspects,such as spillover effect and pricing efficiency,are investigated in order to find out the problems,analyze the reasons behind them,and provide a scientific basis for improving the Shanghai Stock Connect system.Finally,on the basis of analyzing the opening up of China's stock market,the corresponding policy suggestions are put forward.Through the above research,the main conclusions are as follows:First,after analyzing the implementation background and operation conditions of the Shanghai and Hong Kong through the system,we found: 1)The stock market in Hong Kong is better than the mainland in the institutional environment,market environment,regulatory environment,information environment and other aspects;2)after the implementation of Shanghai and Hong Kong through the system,a total of four features reflects in the two markets including the decline of daily turnover,the difference of investors behavior,capital flow asymmetry,the deviation in two city stock prices.Second,by the empirical study,The Stock Connect system of Shanghai and Hong Kong has an impact on price linkage relationship.In order to investigate the influence on the whole system of Shanghai and Hong Kong market,this paper selects the Shanghai Composite Index and the Hang Seng Index Hong Kong's developed by Hang Seng index service company as the representative of A in Shanghai stock market and Hong Kong stock market index.By the cointegration,Granger causality test,econometric method of dynamic correlation coefficient,effects of Shanghai and Hong Kong through the system implementation of the two market valuation of long-term equilibrium relationship,price guide relations between the dynamic correlation of stock price,the research is on the two market price linkage between the relationship,study of the synergy effect,but also to two degree of market integration or segmentation degree are analyzed,the two have internal consistency in the study.The study found that: 1)although the two markets have long-term stability Balanced relationship,internal coordination mechanism has been enhanced,but the relationship between price and lead time varying correlation coefficient was not significantly improved,which indicates that the degree of integration of the two cities did not improve,the degree of market segmentation is not reduced;2)the further study found that after running the Stock Connect system of Shanghai and Hong Kong,the two asymmetric flow of funds in the market has led to deviations from the overall price level of the market increase,this is the main reason resulting in the above results,but because of the existence of the two market development level difference and other constraint conditions,only by a system of barriers to eliminate,the effect is bound to be limited is one of the reasons for these results.Third,this paper examines the influence of the Stock Connect system of Shanghai and Hong Kong on the market price and the investors' expectations.The study found that: 1)after the opening of the Stock Connect system of Shanghai and Hong Kong,the price difference A/H continued to expand.This paper believes that there are two main reasons: one is the asymmetric phenomenon between market liquidity,leading the deviation of stock trend;the other is that while the two funds can flow freely,the Stock Connect system of Shanghai and Hong Kong is just a trading channel,and Hong Kong H shares and mainland A shares are not convertible,investors would not exist arbitrage opportunities,so the flow of funds through Hong Kong and Shanghai and not A/H shares provide arbitrage opportunities,to narrow the price difference A/H the role of nature will be very limited.2)after the implementation of the Stock Connect system of Shanghai and Hong Kong,because investors are more optimistic about the Shanghai shares through the stock's future profitability,thereby boosting the Shanghai stock market stock prices,while the mainland investors in Hong Kong stock market is more conservative,and this result can also explain the "South cold north heat" in the two markets.Fourth,this paper empirically investigates the effect of Stock Connect on the information transmission effect of Shanghai and Hong Kong markets.The study finds that: 1)using the error correction model to investigate the short-term volatility of Shanghai and Hong Kong stock markets,although the underlying stock price of the Shanghai Stock Connect or the underlying Stock Price of the Hong Kong Stock Connect may sometimes deviate from the equilibrium,this deviation is only temporary,and they will eventually be affected by the long-term equilibrium relationship,and they will continue to reduce their deviations,and finally,the equilibrium state will be achieved.2)When the BEKK-GARCH model is used to investigate the volatility spillover effect in Shanghai and Hong Kong stock markets,it is found that after the opening of the Stock Connect system,the stock connect system is used for a single market.The volatility of the underlying stocks of Shanghai Stock Connect and Hong Kong Stock Connect is significantly affected by the fluctuation in the previous period,and the leading relationship between the volatility of the underlying stocks and the underlying stocks of the Hong Kong Stock Connect.There is a two-way volatility spillover between them,and the volatility spillover effect of the underlying stocks from the Hong Kong Stock Connect to the Shanghai Stock Connect is stronger than the volatility spillover effect of the underlying stocks from the Shanghai Stock Connect to the Hong Kong Stock Connect.3)Since the direction of spillover effect is closely related to the direction of risk transmission,another conclusion can be drawn,that is,in the direction of risk transmission,The main manifestation is that the speed of transmission from the underlying stocks of Hong Kong stocks to the stocks listed in the Shanghai Stock Connect is faster than the speed of the transmission from the underlying stocks of the Hong Kong Stock Connect to the stocks of the Hong Kong Stock Connect.This is obviously related to the development of the media in the two markets and the government's control over the media.The market supervision department has the close relation to the listed company information disclosure request and the supervision strength.Fifth,this paper empirically discusses the influence of Stock Connect system on pricing efficiency.1)The ability to respond to the future earnings information of the underlying stock returns on the mainland A-share market has not been effectively enhanced,but has declined.This shows that the implementation of Shanghai and Hong Kong Stock Connect,at least so far,is far from achieving the due effect of improving the pricing efficiency of the mainland stock market;2)When using the ability of stock return to react to the future cash flow as a proxy variable of pricing efficiency,the result is that the Shanghai Stock Connect system has not improved the pricing efficiency of Shanghai stock market;3)When we further explore the reasons for this result,we find that the opening of the Stock Connect of Shanghai and Hong Kong has a significant effect on the efficiency of the Hong Kong market,the market activity,and the stock index uplink,but it has an overall effect on the Shanghai and Hong Kong markets as a whole.The goal of Pareto improvement is far from being achieved.Sixth,the thinking caused by the Shanghai Hong Kong and Hong Kong system.This paper points out that our country is still in the initial stage of the new market economy,and the investor protection is still at a low level.In addition,with the lack of system construction and efficiency of law enforcement,the connotative development of the stock market is far from enough.Therefore,China's stock market is still not open to the outside world.We should first ensure the construction of the internal market,and at the same time,promote the gradual opening of the external market.In addition,Shanghai and Hong Kong as a system innovation of China's stock market opening to the outside world should also follow the gradual development and continue to play an open field for China's stock market to open to the outside world.The research in this paper can not only provide a scientific basis for the regulatory authorities to grasp the implementation effect of the Stock Connect system and its follow-up reform,but also guide the reform of China's stock market and explore the logical order of opening to the outside world.At the same time,it also provides reference and enlightenment for other open system reform in stock market of our country.