Research On The Volatility Spillover Effects And Dynamic Correlation Between Shanghai And Shanghai In The Shanghai-Hong Kong Stock Connect Era

China's capital market started late and relatively closed,there are a certain gap in opening,market-oriented,legal and international level when compared with the international mature market.Hong Kong as the world's third largest international financial center,the capital market is highly developed.For promoting China and the international market in convergence and deep integration aspect,China needs to continuously improve the degree of opening up at the situation of economic globalization.Because capital market as the important part of economy,so it is urgent to reform and opening up the market.China and Hong Kong capital market between the two-way exchange also conform to the requirements of the development of the times,at November 17,2014 China's Shanghai-Hong Kong stock connect program was formally implemented,the two market establish a connectivity mechanism.It not only can expand the investment channels of the mainland and overseas investors,but also accelerate the promotion of the opening and the level of Shanghai,it can also promote the reform of the market structure,supervision and corporate governance.It will realize the goal of Shanghai stock market as international financial center earlier,promote the internationalization of the RMB and stabilize Hong Kong as an international financial center,so the implementation of Shanghai-Hong Kong stock connect program for the short-term and long-term to development of China's capital market has a very important impact.A market volatility is not only affected by the pre-market impact,but also by the impact of other related market fluctuations,resulting the effect of volatility spillover.In the era of Shanghai-Hong Kong stock connect program,Shanghai and Hong Kong stock market interoperability,making the linkage between the market more closely,the transmission of information and risk easier,convenient,the effect of volatility spillover is more obvious.With the development and changes of the market,the volatility correlation of stock market is also time-varying.It is vital importance to understand the transmission direction of volatility spillover in Shanghai market and Hong Kong market,fluctuations in the size of the correlation when determining the direction of market risk transmission,market integration,investors in cross-market investment and government policy-making.Based on the analysis of the factors of causing volatility spillover and influencing the dynamic correlation,this paper puts forward three assumptions on the spillover effect and dynamic correlation between the Shanghai and Hong Kong stock market:(1)the Hong Kong market as the pole of Shanghai market,it is obviously to affect the fluctuations of Shanghai market;(2)the implementation of Shanghai-Hong Kong stock connect program to enhance the degree of Shanghai stock to open up,Shanghai market has a spillover effect to Hong Kong market;(3)Shanghai and Hong Kong market volatility of the impact of the Shanghai to Hong Kong market volatility spillover effect;The dynamic correlation coefficient will be improved.In this paper,three assumptions are validated by BEKK-GARCH(1,1)model and DCC-MVGARCH(1,1)model.In the empirical process,first,select the sample from November 17,2014 to January 20,2017,the Shanghai Composite Index and the Hang Seng Composite Index on the closing price;secondly,after the sample was smooth and ARCH effect test passed(2)the mean value equation is established.Again,using BEKK-GARCH(1,1)model analysis shows that there is only the fluctuation spillover effect of Hong Kong to Shanghai,and the fluctuation effect of Shanghai to Hong Kong market is not significant.Finally,The DCC-MVGARCH(1,1)model calculates the dynamic correlation coefficient between the Shanghai and Hong Kong market in the sample area,which is 0.591.It can be seen that in the three hypotheses,suppose(1)and(3)are validated,assuming that(2)is overthrown,that is,the conclusion of this paper is:First,at the era of Shanghai-Hong Kong stock connect program,the Hong Kong stock market produce the volatility spillover effect to Shanghai market.Due to the opening of the Shanghai market is not high,the Shanghai stock market's fluctuations effect is not significant;Second,at the era of Shanghai-Hong Kong stock connect program,Shanghai and Hong Kong market fluctuations in the dynamic correlation significantly improved,indicating that the integration between the two markets are enhancing.At the end of the paper,some suggestions are put forward to government and investors.The government needs to improve the policy,system,clear power,obligation,building information platform and establishing credibility system.Investors need to focus on value investment and strengthen the ability of individual investment analysis,concerned about the international and domestic situation policy changes.