The Research Of The Influence That Shanghai —Hong Kong Stock Connect Exert On The Liquidity And Volatility Of The Shanghai Stock Market In Chiina

On April 10,2014, The China and Hong Kong’s official department have approved, in principle, the development of a pilot program(Shanghai-Hong Kong Stock Connect) for establishing mutual stock market access between Mainland China and Hong Kong. On November 10,2014, The China and Hong Kong supervision departments have approved the official launch of the pilot program to provide mutual trading access between the Shanghai and Hong Kong stock markets (Shanghai-Hong Kong Stock Connect). Trading through the Shanghai-Hong Kong Stock Connect will commence on 17 November 2014. Shanghai—Hong Kong Stock Connect is another important institutional arrangement after QFII-RQFII which has important implications on the opening system of China’s capital market. It speeds up the process of the internationalization of China’s capital markets. After the implementation of the pilot program, what kind of impact on the underlying market and the underlying stocks by the Shanghai-Hong Kong Stock Connect. The above two issues are the important content to study in this paper. Then I will explore whether the efficiency of the stock market has been improved.Firstly, This paper select the Northbound Trading Link purchase amount and the sales amount and the index of the Northbound Trading Link of Shanghai Stock Market from November 17,2014 to February 17,2016,using VAR model and Granger causality test method to analyze the effects of the Shanghai—Hong Kong Stock Connect on the underlying stock market. On this basis, the paper selects the stock transaction data from January 1,2013 to February 17,using natural experiment approach to analyze the impact of the Shanghai—Hong Kong Stock Connect on the underlying stocks from micro-level. The result is that the Shanghai—Hong Kong Stock Connect can reduce the volatility and improved the liquidity of the stock market. However, the role of the impact on the volatility is smaller. The article explains the causes of this phenomenon. At last, this paper gives advices on how to improve the structure of China’s capital market and accelerate the process of opening to the world.