Research On The Co-movement Between Shanghai And Hong Kong Stock Market

As the global economic integration, the further deepening of financial reform in China, the local financial markets become more closely, especially between mainland and Hong Kong,which have frequent cooperation on the economic, finance and policy.After the impact of major economic event, the government further strengthens the financial reform in our country. Since the mainland stock market was established, the Chinese government has mainly adopted a series of measures, including equity division reform, QFII and QDII and Shanghai-Hong Kong Stock Connect program launched on November17, 2014,to constantly improve the operating environment of Chinese stock market and gradually open the doors of the capital market in China. Capital market continuously opening, however, strengthens the co-movement of the mainland stock market and the Hong Kong stock market. So it is very realistic to study the co-movement of these two cities under the background of the major economic events.This paper first classify literatures on the domestic and foreign stock market co-movement according to the research methods.On the basis of the study of literatures, this paper makes a general overview of the current stock market co-movement theory,and further makes a summing up of a set of channels for transmission of stock market co-movement.On the basis of theoretical analysis, using econometric method makes an empirical analysis of Shanghai stock market and Hong Kong stock market. This paper selects the Shanghai composite index as the representative of the mainland stock market and selects the Hang Seng index as the representative of the Hong Kong stock market, which is closely related to the mainland economy.using two important events occurred in the stock market in mainland China: equity division reform and the global financial crisis, makes the January 5, 2000- December 31, 2014, be divided into three stages.First make correlation test about the Hang Seng index and Shanghai index, then respectively use co-integration test, granger causality test, impulse response function and variance decomposition method to study both the correlation between the stock market, and further verify the co-movement between the two markets.The empirical conclusion is: As mainland and Hong Kong economy and trade is increasingly close, their stock markets have increasing co-movement. In the first stage, the two markets do not have co-movement. But, in phase 2, 3, they have the linkage effect between long-term in both markets. From the point of view of their relationship, the change of the mainland stock market will have a larger impact on Hong Kong stock market.To the contrary, because the mainland stock market is not fully open, so less affected by the Hong Kong stock market. On the basis of empirical findings, this paper market regulators- the government, the major players- investors were made recommendations accordingly.