| Market segmentation has existed ever since the beginning of Chinese stock market. Though B-share market was established soon, China opened its stock market rather modestly, so that our immature financial system could be protected from being attacked by massive foreign capital. Even with the fact that Chinese companies were listing on A-share, B-share and H-share markets, there were no clear evidence of integration, due to constraints of information transmission and capital flow.QFII, which was introduced in 2003, provided an opportunity to change the low openness of inland stock market. Up till 2008, the number of QFII increased to 76 with total granted investment quotas of more than 10 billion US dollars. Meanwhile, the A-stock price went up sharply after 2006, attracting a lot of foreign investors. With these new developments, is Chinese A-share market more open to the world? Do the two segmented markets turn to integration?This paper analyzes the integration of A-share and Hong Kong market. From the micro angle, I use International CAPM to test whether the A-share stock was priced domestically or internationally. The result shows that markets were neither complete segmentation nor integration from 2003 to 2005 and there is evidence in favor of integration over segmentation since 2006. Then, on a market scale, the analysis tests if the two markets led each other using cointegration test and Granger Causality Model and measure the direct linkage between return of indices. Both results are consistent with the previous one.Moreover, using the data of twenty cross-listing companies, this paper analyzes correlation between A-share and H-share markets from 2001 to 2008. And the period is divided into three parts by the time QFII was introduced and when A-share market turned into bull market. Result indicates that QFII did prompt integration to some extent, but the development of A-share in bull market is the major reason for the market integration. |
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