The Study Of Co-movement Between China's Domestic Stock Market And Hong Kong Stock Market

In recent years, the China's domestic stock market has undergone considerable development, the basic completion of Share-split Reform repaired the system defects of stock market, the scale of stock market expanded rapidly, the structure of listed company tends to be more reasonable, institutional investors develop and expand constantly, the China's domestic stock market is gradually moving towards maturity. With a great number of large mainland enterprises listed in Hong Kong stock market, the proportion of mainland enterprises in Hong Kong stock market has been increasing, the market value of mainland enterprises in Hong Kong stock market is more than the value of local enterprises. At the same time, the economic of the two places ties closer, the transfer of funds is becoming more frequent, convenient. Whether co-movement exists between the two stock markets is the content of this study.This paper analyzes the important factors on the linkage of the two stock markets first. on this basis, it divided January 4,2002 to January 31,2008 into three phases by two important events occurred in the China's domestic stock market, which were Share-split Reform and announcing the policy of foreign direct investment by domestic individual investors pilot. It positive tests the existence of the co-movement among the Hang Seng Index, the CSI 300 Index and the Hang Seng China Enterprise Index in three phases with Co-integration test, VECM model, Granger causality test, the Impulse response function and Variance decomposition. Come to the conclusion that: in the different stages, the two stock markets have the different interaction .in the first two stages, the co-movement effects in two stock market does not exist; in the third stage, the two stock markets have co-movement to a certain extent. China's domestic stock market has a greater influence on Hong Kong stock market whereas the Hong Kong stock market has a little effect on China's domestic stock market. It gives further analysis in response to these findings. And it proposes a number of recommendations to investors and regulatory authorities...