Volatility Spillover Effect And Its Formation Mechanism Between Mainland Stock Market And Hong Kong Stock Market Under The Background Of Shanghai-Hong Kong Stock Connect Program

To realize the internationalization of the RMB and enhance the international status of our country,it is urgent to promote the process of financial liberalization.However,if we just focus on quick success,the capital market will be greatly influenced,even trapped in financial crisis.Therefore,we need to conduct a comprehensive assessment of every opening policy,especially focus on the impact on the capital market and the relation between capital markets so that China can successfully introduce the liberalization of capital market step by step.Can capital account liberalization strengthen the relationships between capital markets across the border? How can it promote volatility spillovers and risk contagion between capital markets? Based on the policy of Shanghai-Hong Kong stock connect program,this paper analyzes the changes of volatility spillovers between the industries in these two markets before and after the launch of the program by using generalized spillover index model.This paper also further discusses how these industries influence each other.Based on the literature searching,this paper makes a theoretical analysis of the formation mechanism of the volatility spillover effect between the mainland and Hongkong stock market.Secondly,the paper analyzes the volatility spillover effects of the two stock markets from the micro level,and compares the characteristics of the volatility spillover effects before and after the opening of Shanghai and Hong kong.Thirdly,the paper establishes an empirical analysis of the impact of the stock market volatility spillover mechanism model on the stock market volatility spillover between Shanghai and Hong kong.Finally,according to the conclusions of the empirical study,this paper puts forward corresponding countermeasures and suggestions.According to the empirical results,tertiary industry was in the lead before the launch of the program such as information and telecoms,but after that,secondary industry significantly enhanced its ability of deliver messages;Mainland stock market leads in transitional information,and the program has enhanced the degree of bidirectional volatility spillovers between these industries,especially the spillover from Shanghai to Hongkong;Besides economic fundamentals and capital flow,P/E effect,size effect and the changes of investor sentiment also can affect the volatility spillovers.With the empirical research,this study provides theoretical basis and policy suggestions for improving the relevant system and design other innovative policies.