Linkage Between Mainland And Hong Kong Stock Market In The Financial Sector

With a good deal of inland companies getting listed in Hong Kong stock market, investors sense a prominent relation between the financial sectors in the domestic and the Hong Kong stock market. The relation, which is described as co-movement, is taken for granted and widely used in investment decision making practice. But in fact, its existence has never been fairly testified and the impact never precisely measured. This thesis tries to solve the problem though quantitive analysis. It reviews the existed literature composed by both Chinese and foreign scholars on the co-movement among the international stock markets. And then, it targets the issue from theoretical angle with a brief introduction of the economic mechanism behind the co-movement of stock markets as well as the double listed asset pricing theory. After that, using the data of the indexes in the recent 3 years of the two markets'financial sectors, it examines the existence of the co-movement between the two sectors, and by dividing the data into two periods, the difference of the extend of the co-movement in each period is compared. The techniques used in the study include Covariance, Co-integration test, Error Correction Model, Granger Cause Test, Vector Autoregression, Impulse Response Function, and Variance Decomposition. The conclusion is: during 2004.3.5～2005.9.6, both indexes are largely determined by the historical information of themselves; the innovation from one market had little impact on the other. Yet things had changed greatly during 2005.9.7～2007.3.23. In the second period, the H financial index of Hong Kong stock market exerted a larger and longer impact on the domestic financial sector. The influence of domestic finance sector index on H finance index is positive but relatively small.