An Empirical Study On The Impact Of Shanghai-Hong Kong Stock Connect On The Co-Movement Relationship Between Shanghai And Hong Kong Stock Market

Since the 21 st century,economic ties between countries and areas are closer,global economy trend predominates contemporarily.There continuously exist close economic and trade links between China mainland and Hong Kong,and they are important trading partners to each other.Many China-related companies list In Hong Kong,by 2016,there are totally 394 China-related stocks on SEHK,up to 41.34% of SEHK's market capitalization.Therefore,although the Shanghai and Hong Kong stock market are in different locations and levels,but closely associated.Chinese government implemented the Shanghai-Hong Kong Stock Connect policy to push for stock market reform and enhancing Shanghai stock's international standard.The connection Breaks the division of the two stock markets,has significant influence on the co-movement relationship between them.Based on stock market co-movement theory,this paper analyzes the logic of how ShanghaiHong Kong Stock Connect impacts on the co-movement relationship between Shanghai and Hong Kong stock market,empirically tests the impacts on the cause-effect relationships and volatility spillover by econometric methods,finally presents the volatility spillover paths.The co-movement relationship between different stock markets are driven by two factors: economic fundamentals and investors' behaviors,and the manifestation is cause-effect relationships and volatility spillover.The connecting policy is a mutual market access program which impacts the co-movement relationship between Shanghai stock market and Hong Kong stock market as the flow of information between the two markets is accelerated with the risk aversion and interests obtaining process.Time series models' results show that Hong Kong stock market more obviously causes Shanghai stock market after the connection.Specifically,Hong Kong does granger cause Shanghai,two markets are cointegrated,Hong Kong cause larger impulse response,the percent Shanghai variance due to Hong Kong is more above 60% while the percent Hong Kong variance due to Shanghai is less than 60%.BEKK models‘ results show that volatility spillover from Shanghai to Hong Kong is continuous while volatility spillover from Hong Kong to Shanghai comes up after the connection implementation.The volatility spillover from Shanghai to Hong Kong isn't symmetric,instead from Shanghai to Hong Kong is symmetric after the connection implementation.The paths of volatility spillover change to be more direct,information flow speeds up.The Shanghai-Hong Kong Stock Connect upgrades the level of Shanghai-Hong Kong stock markets' co-movement,especially increases the information flow to Shanghai stock markets.Shanghai stock markets gets closer with international financial markets,becoming more and more open.